1951-06-18

[Stage Direction]
Fourth and fifth, reports of special committee on veterans affairs.-Mr. Mutch.


Hon. Douglas Abboll (Minister of Finance) moved: for leave to introduce Bill No. 385, to vary the Manitoba natural resources agreement.


An hon. Member:: Explain.


Mr. James Sinclair (Parliamentary Assistant to the Minister of Finance):: This bill and the two following are identical in substance. In 1930 the natural resources were transferred to the three provinces and at the same time the school lands trust fund was transferred. That fund was then invested in government of Canada securities, and the provinces have asked that this field of investment be expanded to include provincial, municipal and school board securities. This bill ratifies the agreement.
Motion agreed to and bill read the first time.



ALBERTA NATURAL RESOURCES


Douglas Charles Abbott: for leave to introduce Bill No. 386, to vary the Alberta natural resources agreement.
Motion agreed to and bill read the first time.



SASKATCHEWAN NATURAL RESOURCES


Douglas Charles Abbott: for leave to introduce Bill No. 387, to vary the Saskatchewan natural resources agreement.
Motion agreed to and bill read the first time.



FAIR EMPLOYMENT PRACTICES


Mrs. Ellen L. Fairclough (Hamilton West) moved: for leave to introduce Bill No. 388, to promote fair employment practices in Canada.


Some hon. Members:: Explain.


Ellen Louks Fairclough: The purpose of the bill is to implement the declaration of human rights, as proclaimed by the United Nations on December 10, 1948, in so far as it applies to workers under the jurisdiction of the federal government.
Motion agreed to and bill read the first time.



CENTRAL MORTGAGE AND HOUSING


Hon. Robert H. Winiers (Minister of Resources and Development) moved: the first reading of Bill No. 380 (from the Senate), to amend the Central Mortgage and Housing Corporation Act.
Motion agreed to and bill read the first
time.



NATIONAL HOUSING ACT


[Stage Direction]
Hon. Robert H. Winters (Minister of
Resources and Development) moved the first reading of Bill No. 381 (from the Senate), to amend the National Housing Act, 1944.
Motion agreed to and bill read the first time.


Mr. Browne (St. John's West):: 1.	Have any payments been made to the government of Newfoundland on account of the construction of the trans-Canada highway?
2.	If so, how much has been paid, and what is the mileage on which payment is based?


Mr. Winters:: 1.	Yes.
2.	$957,843.79 has been paid in respect of subgrade construction, culverts and small bridges over approximately 72 miles out of a total length of 153 miles of grading under construction as at March 31, 1951.

Questions



HEALTH GRANTS


Mr. Eudes:: 1.	What has been done under the national health grants program to reduce tuberculosis morbidity and mortality in the province of Quebec?
2.	Has there been any decrease in the tuberculosis mortality rate in Quebec since the inauguration of the national health grants program?


Mr. Martin:: 1.	Approximately $3 million has been spent under the national health grants program toward the control of tuberculosis in the province of Quebec. Preventive diagnostic and treatment services have been provided. Staff and equipment have been provided for diagnostic clinics, mobile clinics, and sanatoria. Drugs, such as streptomycin, para-amino salicylic acid and tibione, have been purchased for free distribution to tuberculous patients. A BCG vaccination program among children has been established Various investigators into BCG vaccine have been carried out.
In addition, under the hospital construction grant, assistance amounting to $1,996,000 has been given toward the construction of 1.921 additional beds in eight provincial sanatoria.
2.	Yes. In 1946 the tuberculosis mortality rate was 72-4 per 100,000; in 1949 the rate had dropped to 48-9 per 100,000.



GRAIN COMMISSIONERS


Mr. Wright:: 1	On what date was the 1949-50 annual report of the board of grain commissioners placed in the hands of the government?
2	On what date was it sent to the printers?
Mr Mcllrailh:
1.	First draft of report received on January 29, and completed report on February 16.
2.	Final report sent to king's printer February 24.



NATIONAL DEFENCE


Mr. Macdonnell (Greenwood):: 1. (1) On the 30th April, 1951, how many civilian employees were there in the Department of National Defence of the following classes: (a) civil servants; (b) prevailing rate employees; (c) casual employees?
(2) What is the estimated wage and salary bill for classes (a) and (b) above for the fiscal year 1951-r2?
2 (1) What is the distribution of the first two classes in question No 1 by commands and areas?
(2) What are the military establishments having in the aggregate more than 500 civilian employees of the employees of the first two classes in question No. 1.
3.	(1) Who is in charge of each such establishment, and is he military or civilian personnel?
fMr. Winters.]
(2) Who of (a) the persons in charge of the above stations and (b) the total civilian employees in the Department of National Defence are employed pursuant to the terms of the Civil Service Act?


Mr. Blanchette:: 1.	(i) (a) 15,158 civil servants (including defence research board); (b) 10,506 prevailing rate employees (including the defence research board); (c) 5,232 casual employees.
(ii) (a) $39,926,103; (b) $18,098,487.
2.	(i) (a)
Navy	Classified	Prevailing RateAtlantic command ...	1739	2100Pacific command ....	922	1022Headquarters 	846	15Outside Canada	35	-(b) Army	Classified	Prevailing RateEastern command ....	313	203New Brunswick area .	132	69Quebec command ....	1272	1013Eastern Quebec area .	206	163Central command ....	783	480Western Ontario area 	541	432Eastern Ontario area 	1130	734Prairie command ....	529	4942. (i) Ob) Army	Classified	Prevailing RateSaskatchewan area ..	169	139Western command ...	379	458British Columbia area 	423	346Army headquarters ..	656	66Outside Canada	20	-(c) R.C.A.F.	Classified	Prevailing RateAir materiel command	1074	417Air transport command	136	322Training command .. .	499	1084Air defence command 	107	150Maritime group	81	98Northwest air command 	303	336Headquarters 	371	39Outside Canada	7	4In addition there are:	(a) civilian branches	under the deputy minister employing 796 in	Ottawa and 356 outside	Ottawa, of	the same
two classes; (b) 387 employees in Ottawa and 1268 employees outside Ottawa, of the defence research board.

(ii)
Location
Canadian National Railways
Officer in Charge
Service
Naval service headquarters Army headquarters Longue Pointe ordnance depot Camp Borden (army)
Halifax dockyard Esquimalt dockyard
Vice Admiral H. T. W. Grant Lieut. Gen. G. G. Simonds Colonel E. D. Elwood Colonel R. C. Clark Commodore W. W. Porteous Captain B. R. Spencer
Royal Canadian Navy Canadian Army Canadian Army Canadian Army Royal Canadian Navy Royal Canadian Navy
3.	(i) See 2 (ii) above.
(ii) (a) None.
(b) All of the civilian employees of the Department of National Defence with the exception of those of the defence research board are employed pursuant to the terms of the Civil Service Act. The Civil Service Act defines "civil servants" as all the employees of the departments of the federal government and that act make specific provision for each type of employee. Under the provisions of section 54 of the National Defence Act, employees of the defence research board are exempted from the terms of the Civil Service Act.
with the usual reservation that, if there is any correspondence with the provinces, we shall have to obtain their consent.


Mr. Speaker:: Carried.



BUSINESS OF THE HOUSE


Hon. Alphonse Fournier (for the Prime Minister) moved:: That on Saturday, June 23, 1951, and every Saturday thereafter until the end of the session, the house shall meet at eleven o'clock a.m., and the order of business and procedure shall be the same as on Thursdays.


[Stage Direction]
Motion agreed to.


Mr. Dechene:: Has any assistance been given under the national health grants program to the school for nursing aides, Calgary, Alberta?


Mr. Martin:: Yes. Since 1949 the national health grants program has supported the school for nursing aides at Calgary, graduating about 150 nursing aides per year. A grant of $40,000 is being made during the present fiscal year to this school.



QUESTION PASSED AS ORDER FOR RETURN


NATIONAL DEFENCE


Mr. Gagnon:: 1.	Are there any employees in the Department of National Defence who are not British subjects?
2.	If so (a) what are their names; (b) respective positions; (c) nature of their work; (d) salary of each; (e) place of origin; (f) by whom, and on what date was each recommended?



MOTION FOR PAPERS


Mr. Coldwell:: For a copy of all correspondence, during the year 1950, and to date in 1951, in the possession of the Department of Public Works, relating to the proposed construction of a bridge over the North Saskatchewan river on the meridian line between the provinces of Alberta and Saskatchewan.


Alphonse Fournier: The government has no objection to the passing of this motion,



CANADIAN NATIONAL RAILWAYS


Douglas Charles Abbott: that the house go into committee at the next sitting to consider the following resolution:
That it is expedient to bring in a measure to authorize the Canadian National Railway Company to make capital expenditures not exceeding $97,737,000, and to increase the working capital of the national railway system by $20,000,000; to provide that the governor in council may authorize the national railway system to incur commitments during 1951, in addition to the authorized expenditure, in amounts not exceeding $111,512,920; to authorize the national company to issue securities to provide amounts required for the authorized expenditures; to provide that amounts available from reserves for depreciation and debt discount amortization may be applied towards meeting the authorized expenditures; to provide that the aggregate principal amount of securities not including any securities issued to secure temporary loans made by the Minister of Finance, outstanding at any time shall not exceed $101,215,000; to authorize the governor in council to guarantee the principal and interest of the securities issued by the company for the purpose aforesaid; to authorize the Minister of Finance to make temporary loans to the said company secured by such securities and not exceeding $101,215,000 in principal amount to enable the said company to meet such expenditures and indebtedness; with authority to give financial aid and assistance to other companies of the said national system and to authorize the Minister of Finance to place at the disposal of the national company or the Trans-Canada Air Lines, such amounts as may be necessary to enable them to pay operating and income charges if at any time before the first day of July, 1952, the available

Inquiries of the Ministry revenues of the national railway system or the Trans-Canada Air Lines and subsidiaries, respectively, are not sufficient to pay such charges: Provided that all such amounts shall be reimbursed to the minister from the recipients' annual revenues in so far as such revenues are sufficient, any insufficiency to be provided for by subsequent deficit appropriation by parliament.
He said: His Excellency the Administrator, having been made acquainted with the subject matter of this resolution, recommends it to the consideration of the house.


[Stage Direction]
Motion agreed to.

[Stage Direction]
On the orders of the day:
Mr. J. G. Diefenbaker (Lake Centre):: should like to direct a question to the Minister of Transport. It arises out of the fact that, according to reports, there are some 5,000 freight cars loaded with wheat at the head of the lakes, causing a glut of wheat at that point, and by reason of lack of transportation-


Mr. Speaker:: Order.


John George Diefenbaker: I understand, Mr. Speaker. Will the minister indicate what the situation is today in the western provinces with regard to moving this wheat, and whether he expects that the present facilities will enable the wheat to be moved before the new crop is ready?


Hon. Lionel Chevrier (Minister of Transport):: The hon. member was good enough to telephone my office indicating that he was going to ask this question. I have a statement which I should like to give to the house. Before doing so, however, I should like to draw the attention of the house to the fact that the last time I was asked a similar question and made a statement in answer thereto it had to do with the shortage of box cars. Strangely enough, today there are in fact too many box cars, and the difficulty is with reference to the movement of the wheat by lake carriers.
It is over a month ago, as a matter of fact on May 11, that I made a review in the house of the movement of western grain. At that time I indicated that the railways and the lake operators had met in full the requirements set down by the Canadian wheat board. The Vancouver situation had been cleaned up and grain was moving freely from the country elevators to both Vancouver and the lakehead; also the lake operators were doing their share in moving the wheat from Fort William and Port Arthur to lower lake ports in the St. Lawrence. However, in the last two or three weeks.


under pressure by the steel companies, some of the lake operators have diverted their ships from the grain trade to the ore trade to fulfil the requirements of our steel mills.
On June 6 the special committee which I appointed, and whose responsibility it is to see that the requirements of the wheat board are met by our transportation agencies, held a meeting and made a full review of the situation prevailing at that time. Pressure was brought to bear on the lake operators, and an undertaking has been given by them to the committee to divert into the grain trade all the ships necessary to take care of the situation which has developed at the lakehead in recent weeks. This situation, naturally, has been caused by the fact that the railways have maintained the tempo of the car loadings at the country elevators, and there has not been sufficient space in the elevators at the lakehead to unload daily the cars delivered by our two railways. The operators met with the wheat board and the grain brokers at the lakehead on Monday of last week, and have given promise to move 16 million bushels before June 23. The grain committee feels that as an immediate step this should take care of the present unfavourable position at the lakehead.


Percy Ellis Wright: Will the action which has now been taken move all the grain which is in the country elevators and on the farms at the present time by the first of August?


Lionel Chevrier: The statement that I made dealt particularly with the movement of grain from the lakehead on ships, and not the movement from country elevators to the lakehead, which is satisfactory.


Percy Ellis Wright: The question I am asking is whether the movement of 16 million bushels from the head of the lakes by June 23, as the minister indicated, will leave sufficient space at the head of the lakes to take care of all the grain in country elevators and on the farms at the present time?


Lionel Chevrier: I understand it will, until June 23.



OIL COMPANIES


[Stage Direction]
On the orders of the day:
Mr. Robert Fair (Battle River):: I should like to address a question to the appropriate minister, and I may say that I have not given notice thereof. Is the appropriate minister aware that during recent days one of the oil companies doing business in Ottawa, and also leasing filling stations to operators, has requested some of the operators to sign

a new lease effective June 1 at an increased rental, to be put into effect if certain restrictions are made effective?


Mr. Gibson:: So what?


Right Hon. C. D. Howe (Minister of Trade and Commerce):: Possibly this question comes as near to being my responsibility as that of anyone else. I was not aware of the situation, and I do not know what reference it has to the work of the federal government.


Robert Fair: In order that the minister may have an opportunity to look into this question I will send him a letter covering it, because I believe it is a matter of unfair business practices.



MING SUNG INDUSTRIAL COMPANY


[Stage Direction]
On the orders of the day:
Mr. George A. Drew (Leader of the Opposition):: Mr. Speaker, on Friday evening, during the discussion in regard to certain communications with respect to the operations of the Ming Sung Industrial Company, the Minister of Trade and Commerce undertook to table a letter which he read into the record at that time, and also the covering letter from the office of the Canadian trade commissioner in Hong Kong. I find these have not been tabled, and would ask the minister when that will be done.


Clarence Decatur Howe: Just as I took my seat a page came and asked for the letter, and I gave it to him. I have not seen it since, but I will try to find it and table it immediately. As a matter of fact I thought the page was taking it to the table.


George Alexander Drew: I would point out that two
letters-the one that was read, and the covering letter of the trade commissioner, or whoever it may have been in his office-were included in the undertaking that was given.


Clarence Decatur Howe: I will table them some time today.


George Alexander Drew: In view of the fact that the discussion which was under way at the time the house adjourned Friday evening related to a subject which will come up for discussion again, I would ask the Minister of Transport whether he will give an undertaking, in order to facilitate that discussion, to table the letter or letters from his department which gave the instructions as a result of which the five ships of the Ming Sung Company were transferred to Canadian registry and exempted from the provisions of the shipping act.
Inquiries of the Ministry


Lionel Chevrier: I indicated that as far as the Department of Transport was concerned we had nothing to hide. When the time comes, whether it be on my estimates or on some other occasion, I will give the house all the information I have. So far as the tabling is concerned, since the discussion on Friday I have not had an opportunity of consulting the files. When I do have that opportunity I will be able to determine whether or not they should be tabled.
[Later]:


Clarence Decatur Howe: Mr. Speaker, if I may revert to motions, I wish to lay on the table of the House of Commons a copy of a letter dated June 8, 1951, addressed to Mr. T. R. G. Fletcher, from C. C. Yang, manager of the Ming Sung Industrial Company (H.K.) Limited, and the letter of transmittal, dated June 13, 1951, from R. G. Peers, of the Roy Peers Company Limited, to Mr. John J. Deutsch.



LABOUR CONDITIONS


[Stage Direction]
On the orders of the day:
Mr. Donald M. Fleming (Eglinion):: I would like to ask the Minister of Defence Production what negotiations or communications are passing between his department and the motorcar industry in Canada with a view to easing employment conditions by giving defence orders.


Clarence Decatur Howe: There have been discussions with the motorcar companies about defence orders. Development orders have been placed with two of the companies, and it is expected that the third company will receive an order very shortly. That company is exploring the type of vehicle we wish to build, and as soon as the company indicates that it is ready to close negotiations, we will be ready. There have been discussions with one of the companies about the accumulation of cars that is taking place, but nothing conclusive has been decided.



TAX AGREEMENTS


Hon. J. J. McCann (Minister of National Revenue) moved: the second reading of Bill No. 372, respecting an income tax agreement between Canada and Sweden.

Canada-Sweden Tax Agreement


Mr. Macdonnell (Greenwood):: Will the minister please explain this?


James Joseph McCann: I suggest that it might expedite matters if I were to make the statement when we go into committee. I do not think there will be much discussion as to the principle, and when we are in committee I can give the statement and we can deal with the different sections of the bill, and with the schedules, which are the most important part of it.


[Stage Direction]
Motion agreed to, bill read the second time and the house went into committee thereon, Mr. Dion in the chair.
On section 1-Short title.
James Joseph McCann: The purpose of this bill is to give legal effect in Canada to the agreement between the government of Canada and the royal government of Sweden, for the avoidance of double taxation and the establishment of rules for reciprocal fiscal assistance in the matter of income taxes, which was signed at Ottawa on April 6 last.
This agreement, in line with similar agreements we already have with the United States, the United Kingdom and New Zealand, has as its purpose the avoidance of double taxation in respect of trading profits, dividends, interest, and royalty payments flowing between Sweden and Canada. It systematizes taxes imposed on other types of income, including salaries, pensions and annuities which might be taxable in both countries.
Provision is made for tax credit, and for the exchange of information. Article III provides that one country will only tax the industrial and commercial profits of an enterprise of the other country if it has a permanent establishment in that country.
Article VI provides that the withholding tax on dividends will not exceed 15 per cent, or in the case of wholly owned subsidiaries, 5 per cent. Under article XV each country agrees to grant a tax credit for the tax on the dividends withheld by the country of source, or the exemption of such income from taxation.
Article IX provides that remuneration paid by the government of a country for services rendered to that government in the discharge of governmental functions shall be exempt from tax in the other country. Article X provides that an individual who is a resident of one country performing services for or on behalf of a person resident in that country shall be exempt from tax in the other country if he is present there for a period or periods not exceeding 183 days. This rule does not apply to public entertainers.

Article XV provides that Canada will gel a tax credit for tax paid in Sweden in respecl of income having its source in Sweden. Since Sweden has not adopted the system of tax credits, it agrees to give relief by way of exemption from taxation so as to make the relief reciprocal.
Article XVIII provides for the exchange of information.
As I have indicated, this agreement follows the pattern of the agreements Canada already has with the United States, the United Kingdom and New Zealand.


James MacKerras Macdonnell: I noticed that the minister used two phrases in comparing this agreement with those already in existence which have been tested and, I think, proved by time. He said it was in line with similar agreements with the United States, the United Kingdom and New Zealand, and then he said it followed the pattern. Will the minister be a little more specific? Can he say that it is precisely the same; or if it is not, can he indicate in what ways it is different?


James Joseph McCann: In general they are the same. There may be some differences in small details, but they follow the same general pattern as the agreements we already have. The principles involved are the same; they are, of course, the avoidance of double taxation and the establishment of rules for reciprocal fiscal assistance in the matter of income tax. Then it goes into a little further detail. The agreement, in line with other similar agreements, has as its purpose the avoidance of double taxation in respect of trading profits, dividends, interest and royalty payments flowing between Sweden and Canada. It systematizes the taxes imposed on other types of income, including salaries, pensions, and annuities which might be taxable in both countries. Provision is made for tax credits, and for an exchange of information. I do not know that I can point out in detail just the differences, if there are any, with reference to each of the different types of tax mentioned, but the principles followed are precisely the same with reference to the generality of the agreement.


James MacKerras Macdonnell: I really
cannot ask the minister to say that every "i" is dotted in the same way. He has said the principles followed are precisely the same. We are getting the same benefits and giving the same concessions, substantially?


James Joseph McCann: Substantially, that is right.


James MacKerras Macdonnell: What is the total amount involved?


James Joseph McCann: This is a new agreement,
and it would be impossible at this stage to give the total amount of money involved.


James MacKerras Macdonnell: Let me
change the form of my question a little. Have we no indication at all, from our previous contacts with New Zealand nationals or with our own nationals with investments in Sweden, whether the amount involved is comparatively trivial, or whether it is large? In addition to that, are there any large corporation interests involved?


James Joseph McCann: I am informed there are
no large corporations involved. We are not giving up any revenue under our system of tax credits.


James MacKerras Macdonnell: Can the
minister not give any illustrative figure? Can he say whether it involves incomes of $20 million, $30 million or $50 million? It would be interesting to know roughly the magnitude of the thing with which we are dealing.


James Joseph McCann: At the time the agreement
was made, there was an examination of the different accounts. At that time something less than $100,000 was involved. What has occurred since then I am not prepared to state.


Mr. Adamson:: Are there any other agreements, or does this agreement include succession duties?


James Joseph McCann: We have not negotiated any
succession duty convention with Sweden as yet.


Agar Rodney Adamson: I bring that up, Mr. Chairman, because the question of succession duties, particularly for those holding securities abroad, is one to which the government should give earnest attention. Double succession duties can be even more unfair on the Canadian taxpayer than double income taxes. Can the minister say with what countries we have succession duty conventions?


James Joseph McCann: If the hon. member will
look at the order paper he will see that the next bill, No. 373, is an act respecting succession duty conventions between Canada and France. We have also succession duty agreements with the United Kingdom and the United States. The succession duty agreement with France will be the third.


Donald Methuen Fleming: The agreement provides for
its ratification on the part of Sweden by His Majesty the King of Sweden, subject to the consent of the riksdag. Has Sweden ratified this agreement in that manner, and when?
Canada-Sweden Tax Agreement


James Joseph McCann: Yes; it was ratified on May 16 by the Swedish parliament.


Mr. Noseworthy:: There is a question on
article XII, Mr. Chairman-


James Joseph McCann: Might I suggest that we pass the sections of this bill and then consider the schedule? We can give the explanation of any of the articles at that time.


[Stage Direction]
Section agreed to.
Sections 2 and 3 agreed to.
On section 4-Orders and regulations.
Donald Methuen Fleming: I presume that the orders
and regulations issued by the minister under the provisions of this article will be tabled in the house, because they are to have the power of law. Under the provisions of the article they can have the effect of overriding inconsistent enactments.


James Joseph McCann: They will come under the
Regulations Act and be tabled.


[Stage Direction]
Section agreed to.
Section 5 agreed to.
On the schedule.
Mr. Nose worthy:	I notice that article
XII speaks of professors or teachers at the university level. Does that take in secondary schools, or only schools above the secondary school level? What is the position of a public or secondary schoolteacher on exchange?
James Joseph McCann: These articles are for the
purpose of fostering cultural interests between the two countries. Professors or teachers from one country will be exempt from tax while visiting other countries for a period not exceeding two years. Students and apprentices from one country receiving education or training in the other will be exempt from tax in that country on payments received from home for maintenance, education or training. In this agreement it includes professors at universities, but the hon. member spoke of secondary schoolteachers. Sweden would not agree to that.


[Stage Direction]
Schedule agreed to.
Title agreed to.
Bill reported.
Mr. Speaker:: When shall this bill be read a third time?


James Joseph McCann: Now.


James Joseph McCann: the third reading of the bill.
Motion agreed to and bill read the third time and passed.

Canada-France-Succession Duties



CANADA-FRANCE  SUCCESSION DUTY    APPROVAL OF CONVENTION AND PROTOCOL SIGNED AT PARIS, MARCH 16, 1951

James Joseph McCann: the second reading of Bill No. 373, respecting a succession duty convention and protocol between Canada and France.
He said: May I suggest that we follow the same procedure as in the case of the first bill, and I shall make a statement in the committee stage?


[Stage Direction]
Motion agreed to, bill read the second time and the house went into committee thereon, Mr. Dion in the chair.
On section 1

Short title.
James Joseph McCann: Mr. Chairman, the purpose of this bill is to approve, and to declare as having the force of law in Canada, the convention between the Canadian government and the French government for the avoidance of double taxation and the prevention of fiscal evasion with respect to succession duties. The convention is set out as a schedule of the bill.
As the committee knows, we now have succession duty conventions with the United States and the United Kingdom. These have been followed as patterns in the negotiations with France. I might mention, incidentally, that these negotiations started in 1947 and the agreement was signed only in March of this year. The main purpose of this agreement is to provide for a tax credit and for exchange of information.
Article 5 provides that the country of domicile will allow credit against its duty in respect of property taxed by both countries. This credit is the lesser of either (a) its own tax on such property, or (b) the tax of the other country on the same property. This is similar to the provisions in the agreements between Canada and the United Kingdom and Canada and the United States.
Article 7 provides that the two countries will exchange information so that each will be advised of the death of its domiciled decedents and of the composition of their estates. Furthermore, each country will be advised of the composition of estates of persons domiciled in the other country, who have property situated in the first country. This is similar to the arrangements existing with the United States and the United Kingdom. The protocol outlines what assets each country respectively will expect to receive information about from the other.


James MacKerras Macdonnell: This succession duty agreement with France follows the general lines which have been followed


and found satisfactory with the other countries the minister has mentioned. The principles are the same. Have any difficulties arisen with regard to the exchange of information? What I mean is this. We are broadening the thing out now to go into a country like France. Have any difficulties been raised by Canadian citizens, or are there any which have been discovered in the administration of the existing arrangements?


James Joseph McCann: I can state that this bill follows substantially similar bills which we have with other countries, and that no difficulties have arisen with reference to the points raised by the hon. member for Greenwood.


Donald Methuen Fleming: Will the minister indicate what steps have been taken on behalf of France to ratify and to give the force of law to the agreements?


James Joseph McCann: They are waiting until we have our agreement approved by statute, until the joint agreement becomes operative.


Donald Methuen Fleming: In other words, as to actual ratification, I gather that no step has been taken on behalf of France. They are waiting for this step that is being taken here today.


James Joseph McCann: So far as our information goes, we do not know that they have to have parliamentary authority to ratify it.


[Stage Direction]
Section agreed to.
Sections 2 to 5 inclusive agreed to.
Schedule agreed to.
Title agreed to.
Bill reported, read the third time and passed.

James Joseph McCann: the second reading of Bill No. 374, respecting an income tax convention
between Canada and France.


[Stage Direction]
Motion agreed to, bill read the second time and the house went into committee thereon, Mr. Dion in the chair.
On section 1-Short title.
James Joseph McCann: Mr. Chairman, the purpose of this bill is to approve and declare as having the force of law in Canada the convention between the government of Canada and the government of the French republic for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.

This agreement follows the pattern of the agreements which Canada already has with the United States, the United Kingdom and New Zealand.
I have already indicated in my statement on Bill No. 372 the general purpose of such an agreement. I might, therefore, confine my remarks to referring to the important sections of this particular agreement.
Article 4 provides that an enterprise of one country will be subject to tax in the other country on its industrial and commercial profits to the extent that these are attributable to its permanent establishment in the other country.
Paragraph II of article 7 is of particular interest to Canadian companies which have operated in France through wholly-owned subsidiaries. Under these circumstances, there was a tax imposed by France on the profits of subsidiary companies operating there, and another tax on the dividends distributed by a subsidiary company to its Canadian parent. There was also imposed by the French authorities a tax on the Canadian parent company when the latter declared a dividend, a part of which was considered to be the distribution of profits earned in France by reason of the Canadian company's interest in the French subsidiary. Under paragraph II of article 7, France will no longer collect this third tax, so that a Canadian parent company will not be subject to tax on the dividends it pays by reason of its participation in a subsidiary company in France.
Article 9 provides that the salaries paid by one government to its officials who reside in the other state for the purpose of fulfilling their duties will be exempt from tax in such foreign state.
Article 10 provides that the remuneration of those other than government officials will be taxed in the country in which they are employed, unless such employment is merely temporary.
Article 16 provides for the avoidance of double taxation on the types of income therein described by means of tax credits or exemption from tax.
Article 19 provides for the exchange of information.
As I have already indicated, the agreement follows the pattern that has been set by the previous agreements with the other countries I have already mentioned, and the agreements are substantially the same.


James MacKerras Macdonnell: Just on that last point I should like to ask the minister a question. This looks like a much more detailed and complicated agreement than
18, 1951	4209
Canada-France-Income Tax Convention the one with Sweden. I am going to refer in a moment particularly to paragraph II of article 7, but can we say in general that the provisions included here-it is an extensive agreement-have been used and tested in our agreements with the United States, the United Kingdom and others which have been in existence for some time?


James Joseph McCann: Paragraph II of article 7 is of particular interest to Canadian companies which have operated in France through wholly owned subsidiaries. Under these circumstances there was a tax imposed by France on the profits of the subsidiary company operating there, and another tax on the dividends distributed by the subsidiary company to its Canadian parent. There was also imposed by the French authorities a tax on the Canadian parent company when the Canadian parent company declared a dividend, a part of which was considered to be a distribution of profit earned in France by reason of the Canadian company's interest in the French subsidiary. Under article 7 of the agreement-and this is the important part-France will no longer collect this third tax, so that the Canadian parent company will not be subject to tax cn the dividends which it passes by reason of its participation in a subsidiary company in France.	'


James MacKerras Macdonnell: That sounds satisfactory and convincing up to a point, but I should like to ask the minister another question. The wording of the last part of paragraph II of article 7 seems so vague and so capable of rather extensive application that I want to read it:
The profits distributed by this latter company and subject to the proportional tax on income derived from securities, will, if necessary, be increased, for the purpose of establishing the basis of the tax, by all the profits or advantages which the former company may have received indirectly from the latter company in the circumstances provided by article 5 above.
The words: "if necessary" and "profits or advantages," and the word "indirectly," all seem to me to be capable of creating difficulties in interpretation. That is what leads me to ask the minister whether in fact this is a clause which has stood the test of time, or whether it is new or exploratory.


James Joseph McCann: France agreed to eliminate this third tax, but it has insisted upon this particular reservation so that it would tax the subsidiary company, that is, the second tax.


James MacKerras Macdonnell: At this stage I do not suppose there is much point in having more to say about it, but I must say it seems to me to be full of possibilities for
4210	HOUSE OF
Canada-France-Income Tax Convention the ingenuity of different interpretations. However, at the moment it does not seem worth while to press it further.


Donald Methuen Fleming: Coming back to the question of ratification on behalf of France, I presume the position with respect to this bill is the same as with respect to Bill No. 373. From the minister's answer I was not quite clear as to what the opinion of the Canadian government is with regard to steps which should be taken on behalf of France to constitute ratification by France. Both agreements- that is, the agreements which are schedules to Bills Nos. 373 and 374-provide that agreement in each case shall come into effect on a date to be agreed upon by the governments. I wish the minister would indicate what date is agreed upon or in contemplation for bringing both these agreements into effect. Can he enlarge on his answer given on the previous bill on the subject of the method of ratification by France?


James Joseph McCann: It is a difference of procedure and authority. I understand that so far as France is concerned, their executive or their cabinet have the authority to put this agreement into effect. Here the procedure is different; it has to come before parliament and be given statutory effect by parliament. Therefore it is a question of who has the authority. Our understanding is that their executive body, which corresponds to our cabinet, authorizes it.
So far as the date is concerned, it is still a question for their executive authority to indicate the date on which they wish it to come into effect.


[Stage Direction]
Section agreed to.
Sections 2 to 5 inclusive agreed to.
On the schedule.
Joseph William Noseworthy: I should like to ask a question about article 14. This is the article which refers to the liberal professions. I take it that teachers or professional people, Canadians, working in France, are taxed in France, and vice versa; is that correct?


James Joseph McCann: Yes, professional people,
teachers and professors, will be taxed in the country where they carry on their activities. If this income is taxable in Canada, France will allow a tax credit; if it were the other way around we would allow a tax credit. That is the reciprocity in it. They do not have to pay double if they get the tax credit. A Canadian teacher over in France, if he were taxed there on his Canadian income, would get a tax credit for the amount of tax that he has to pay, and vice versa.


Joseph William Noseworthy: What is the position of Canadian teachers on exchange with France


where the salaries are paid by the Canadian school authorities? Are they taxed in France or in Canada?


James Joseph McCann: If they were teaching in France, they would be taxed, if they were earning income there.


Joseph William Noseworthy: Where the French tax does not correspond to what the Canadian tax would be, they are taxed in Canada for the difference?


James Joseph McCann: That would be right. They would be taxed in Canada on their world income. If the amount of tax that they paid in Canada was not equal to the amount of tax that they paid in France, they would have to pay the difference between that amount and the amount to be paid, but they get a credit for the amount of tax that they pay in the country in which they are carrying on their teaching or student activities.


Agar Rodney Adamson: Only if they have a Canadian income. Surely the income derived from their work in France is not subject to tax in Canada, is it?


James Joseph McCann: No; this provides for people who have two incomes.


Agar Rodney Adamson: Exchange, yes.


[Stage Direction]
Schedule agreed to.
Title agreed to.
Bill reported, read the third time and passed.


Lionel Chevrier: the second reading of Bill No. 376, respecting the construction of a line of railway by the Canadian National Railway Company from Sherridon to Lynn Lake in the province of Manitoba.


Mr. Green:: Is it the intention of the
Minister of Transport to make a statement?


Lionel Chevrier: On the resolution I dealt
with the reasons for the construction of this line. I need not repeat what I said at that time, but briefly perhaps I should summarize the essential features of this bill. They can be divided into four parts.
First, the Canadian National Railways has agreed, subject to the approval of parliament, to construct a line a distance of 155 miles from Sherridon in the province of Manitoba to Lynn lake in the same province. The cost of the line is to be $14,725,000, $10 million of which is to be financed by the Canadian National Railways and the remainder by the government.

The Canadian National Railways has entered into an agreement with Sherritt Gordon, the main features of which are as follows:	Sherritt Gordon will build the
necessary plant and other buildings required to develop the mine, together with a concentrator capable of concentrating 2,000 tons of ore per day. Sherritt Gordon will also build a refinery at Edmonton for the purpose of taking care of the concentrates of nickel.
After the completion of the line the company will agree to pay Canadian National Railways $350,000 a year for a period of twenty years. Then the mining company agrees to locate its plant upon the line of Canadian National Railways and ship its production and products over the C.N.R. line. On the other hand, Canadian National Railways agrees to build a line which will be ready for operation by November I, 1953. It agrees also to operate it in accordance with the traffic and the needs of the traffic prevailing in the area. The railway further agrees that after it has carried an amount of traffic equivalent to 1,880,000 tons of outgoing traffic it will pay Sherritt Gordon mines $2.25 per ton in excess of the 1,880,000 tons until the sum of $5 million has been paid. Canadian National Railways has an agreement or undertaking from the government that any amount in excess of $10 million will be paid by the government, and that amount is estimated at $4,725,000.
The whole reason for the construction is the mineral development that has been found in the area contiguous to Lynn lake in the province of Manitoba. In 1937 Sherritt Gordon Mines Limited began a large scale program of exploration work in the area of the Pre-Cambrian lavas north of Granville lake in northern Manitoba. The result of this work was discovery of gold made at Lasthope lake in 1938 and the discovery of nickel and copper sulphides in small outcroppings near Lynn lake in 1940. Since that time the exploratory work has been going on, and in fact up until the end of 1950 the exploration and development work of Sherritt Gordon has been going on and there has been established the presence of eleven sulphide bodies containing, above a depth of 1,700 feet, a total of 14 million tons of nickel-copper deposits.
Metallurgical tests have indicated that copper concentrate and a nickel concentrate of a satisfactory grade and recovery can be made by treating the nickel-copper sulphides in a flotation mill. The copper concentrates would be shipped to the Hudson Bay Mining and Smelting Company at Flin Flon, and the
Canadian National Railways nickel concentrates would be treated in the proposed ammonia leaching plant to be constructed at Edmonton, Alberta.
The Sherritt Gordon discoveries became generally known during the winter of 1946-47, and a large number of claims were staked by various companies and interests, both large and small, in that area. At the present time the only known mineralized bodies of significance are on claims held by Sherritt Gordon. During the past four years Sherritt Gordon has established the presence of the nickel-copper ore bodies which I have mentioned, and a shaft has been sunk to a depth of 1,024 feet. Mineralized bodies have been investigated underground, but the development work has now ceased pending the completion of plans for production, namely, the construction of the railroad. These deposits cannot be taken out of that area until the railroad is constructed.
^ I should like to bring to the attention of the house the necessity of speed of construction. It is of the greatest importance. Time is of the essence. Everything must be in readiness by October, 1953, at which time the railway company has undertaken to have its line ready for operation. As a matter of fact, the date is November 1, 1953. That is why there is a need for speed in the construction. As hon. members who come from that area know, the period during which construction work can be carried on is a limited one, a matter of some months, so that the railway company will have to move quickly and expeditiously if this line is to be completed by November 1, 1953.
As I indicated in the earlier discussion on the resolution, when debate is completed on the second reading of the bill I propose to move that it be referred to the committee on railways, canals and telegraph lines for further study.


Howard Charles Green: Mr. Speaker, the members of the official opposition believe that this mining development is of great importance, and we support this bill which will provide for the construction of a railroad line by Canadian National Railway Company from Sherridon to Lynn lake in northern Manitoba.
The Minister of Transport (Mr. Chevrier) has given the house something of the interesting story behind this project. Apparently large reserves of nickel and copper and cobalt have been discovered at Lynn lake. Under present conditions these are classed as strategic minerals. The minister stated that the government of Canada is paying direct
4212	HOUSE OF
Canadian National Railways whatever is required to construct this railroad line over $10 million. During the discussion of the estimates of the Department of Defence Production the minister of that department indicated that this amount was estimated at $4,725,000, and was to be given by way of direct capital assistance from his department on the ground that this is defence production. We do not quarrel with such an expenditure under those conditions.
As hon. members know, Sherritt Gordon Mines Limited has been and is a very enterprising company. The annual report for last year shows that at present metal prices the gross value of the recoverable nickel and copper in the ore reserves at Lynn lake amounts to over $175 million-that is without completing the exploration work. It is hoped that there is a great deal more ore there than the amount already found. The report also indicates that the plan of development is to produce approximately 17 million pounds of refined nickel metal per year, 9 million pounds of copper, 300,000 pounds of cobalt and 70,000 tons of ammonium sulphate fertilizer.
We are also very much interested in the fact that the company has a market available for these products. The report sets out that a contract has been made with the stockpiling agency of the United States government for the sale of a substantial portion of the anticipated nickel, copper and cobalt output for the first five years of production. It also indicates that contracts have been made with four of the large nickel consumers among the United States steel producers covering the balance of the nickel and cobalt output for the same period. Apparently the company does not expect any difficulty in disposing of the ammonium sulphate fertilizer and the balance of the copper production at prevailing prices.
They are planning to spend on this development something over $28 million. That amount is over and above the cost of the railway, as I understand it, so that this is a very substantial development.
We are glad to see that they are going to take the nickel concentrates to the vicinity of Edmonton for refining there by natural gas. In recent years members have heard a great deal of talk in this house about natural gas. Here is a case where a large mining company is taking its product to Alberta because natural gas is available there. So far as I know, this is one of the first cases in which that has been done, and it will mean a great deal for the province of Alberta and of course for the dominion at large.


We believe strongly that northern Canada holds the key to the future greatness of this country. Naturally we are very glad to see the developments in northern Quebec and Labrador, where they are opening iron properties. In northern Ontario, you will remember, Mr. Speaker, the great discoveries in the Cobalt area when we were younger . than we are now, but still in this present century. Then there were the subsequent gold developments which led to a tremendous increase in the wealth of Ontario and of the whole of Canada. Now we have a similar development in northern Manitoba, and also the finding of uranium ore in northern Saskatchewan. I believe that if a young Canadian were asking for advice today he could be very well told to "go north, young man," just as many years ago young Americans were told to go west. Personally I think the future of Canada depends on how rapidly and efficiently we open up the north country.
There is one thing we do not understand about the bill, and that is the form in which it is drawn. There is no mention whatever of the agreement between Canadian National Railway Company and Sherritt Gordon Mines Limited. In fact there is no mention of the company in the bill at all. Nor is there any mention of the Department of Defence Production. We find that the mileage is to be 155, that the cost is to be $14,725,000, and that the average cost per mile is to be $95,000 with the power to spend fifteen per cent over that figure. But a person reading the bill and then listening to the explanation of the Minister of Transport would think that he had the wrong bill.


Lionel Chevrier: That he had what?


Howard Charles Green: It may be that the bill is in the proper legal form, but I think the agreement should be mentioned therein and should be made a schedule thereto. Without the agreement between the mining company and Canadian National Railway Company there is no justification for a railway. This is not the ordinary case of the construction of a railway. This is a special case in which a company is involved and is willing to pay several million dollars to Canadian National Railway Company. I believe that there should be some mention of the mining company in the bill, and that the whole agreement should be made a schedule to the bill.
I presume that the standing committee on railways, canals and telegraph lines will be considering the measure within the next day or two, and I urge upon the minister that in the meantime some thought be given to amending the bill in the committee so that the whole picture will appear. It is hard

enough to understand statutes even when they are carefully drawn, but in this particular case one would be like a babe in the woods in trying to find out from the bill what is actually taking place. I repeat that we hope the minister will give some thought to inserting terms in the bill which will make its purpose much clearer than it is at the present time.


Mr. G. M. Murray (Cariboo):: Mr. Speaker, I merely wish to say that we in northern British Columbia are very enthusiastic about the development that is taking place in northern Manitoba, because we have the same problems in northern British Columbia as they have in northern Manitoba. I think the extension of Canadian National Railways in that region will merely be a pattern which will later be followed in British Columbia. I am sure the minister will agree it is high time that he extended the Northern Alberta Railways westward into the fertile wheat fields, the oil fields, and to that region where there is also coal and lumber. As the hon. member for Vancouver-Quadra (Mr. Green) has said, these developments are good for the whole of Canada. At Lynn lake you have an industry which will help other industries. The farming industry, for instance, will have a market there. The smelter will produce commercial fertilizer which will be so necessary in that part of Canada. That region is not very far from a fertile farming area, as members from Saskatchewan and Manitoba can tell us.
The country needs population. Of course this is a defence project, but I believe that the feeling in that northern country, where there is fertile land and white settlers, is that extending these railroads is an essential part of our defence program.
I would point out to the minister that we need a railway beyond there, to connect Vancouver with Alaska. This very day, labour trouble on the Pacific coast is tying up all our coastal shipping, so that the great military establishments of Alaska are cut off from both the United States mainland and British Columbia so far as water is concerned. So we are back in the traditional Liberal atmosphere now, with new railways being projected and carried forward into the very richest parts of this continent.


Mr. G. D. Weaver (Churchill):: Mr. Speaker, I do not propose to take up much of the time of the house this morning, but I feel I should say a few words on this bill, because the construction of this railway is a matter of vital interest to a large number of my constituents.
The Sherritt Gordon mine went into operation in 1930, and the mine at Sherridon
Canadian National Railways is now worked out. In the last few years the new mine at Lynn lake has been developed; and the closing down of the old mine and the opening of the new have been beautifully co-ordinated so that it requires only this railway to complete the whole project. The old mine will shut down some time this fall, and the surface mining equipment, including the concentrator, will be dismantled and taken over winter roads 150 odd miles to Lynn lake by caterpillar tractors. A large number of the houses of the town will be transported north in the same way. The concentrator will be set up, and when the railway reaches there in 1953 they will be all ready to transport the concentrates to the new refinery at Edmonton.
On a previous occasion I gave the house some figures to illustrate just what an operation of this kind means to the Canadian economy. The mine at Flin Flon came into operation in 1930 with ore reserves of approximately 19 million tons. Now, twenty-one years later, Flin Flon is a town of 12,000 people, and last year produced $40 million worth of metals. At the present time it still has ore reserves amounting to 19 million tons. In 1949 it paid into the federal treasury in ore royalties and direct taxes some $5,500,000, almost the amount now being paid out of the federal treasury to construct the line to the new operation. In indirect taxes the mine paid in the neighbourhood of a million and a half. In proportion to population these payments in taxes amount to about five times the national average. In the last twenty-one years approximately $450 million worth of metals have been produced at the Flin Flon mines. There is a factor to be added to primary production to reach the gross national product attributable to that production, and that factor has been worked out at approximately two and a half. The minister gave the production from this new development as approximately $14 million a year for the next twenty years, or a total of $280 million. Multiplying that by the factor of two and a half gives you an increase in the gross national product of the Canadian economy in the next twenty years of approximately $700 million.
The amount being paid from the federal treasury for this development is only five-sevenths of one per cent of that $700 million, and those figures do not take into account the value of the ore that may lie beyond the last drillhead. In working out the economics of a proposition such as this you cannot go beyond the last drillhead because there is always the distinct possibility that there is no ore beyond that; but you do not know

Canadian National Railways until the drill has been pushed through. In the case of the Flin Flon mine, as I have shown, we have mined three times the ore that was blocked out at the time the operation started. Therefore it is reasonable to suppose that a considerable amount of ore lies beyond the last drillhead, and that the addition to the gross national product may be three times the figure I have mentioned.
Some hon. members have raised the point that the mine at Lynn lake will be the only source of revenue for this railroad. I would point out that in northern Manitoba we have a very large fresh water fishing industry. Some ninety-five per cent of that fish goes to the United States and brings in United States dollars. Last year in the neighbourhood of six million pounds of fish were taken in northern Manitoba. The greater part of that fish comes in by tractor train over winter roads to the present railhead. This railway will move that frontier back approximately 150 miles, thus benefiting all the fishermen in northern Manitoba.
No doubt hon. members are also aware of a recent article in the New York Times referring to uranium deposits at Black lake in northern Saskatchewan, in which it was mentioned that railway facilities would be required. I would point out that if this railway were eventually extended from Lynn lake to lac du Brochet, around north of Reindeer lake and Wollaston lake, it is the logical line to be extended to the vicinity of Black lake. From there it is only a short jump to lake Athabasca, Hay river and Great Slave lake, and from there it is still only a short jump to the Mackenzie valley and across to the Yukon and Alaska, covering the area just mentioned by the hon. member for Cariboo (Mr. Murray). Another point in that connection is that this line would run completely through the great Canadian shield, which, as everyone knows, is the greatest source of minerals in the world, and which is the foundation for Canada's greatness in the years ahead.
Therefore I do not look upon this proposed extension as a railway for Lynn lake only. This is really for the development of Canada, and the Lynn lake mine is merely the spark justifying that development economically at the present time. I want to commend the Canadian National Railways for being prepared to undertake this operation, and I would like also to commend the Minister of Transport (Mr. Chevrier) for being prepared to recommend this operation to his colleagues and through them to parliament and through parliament to the people of Canada. His faith in our northern country will not be misplaced.


Mr. William Bryce (Selkirk):: My colleague from Manitoba who preceded me has given a pretty good description of what this railway means to our province. I want to assure him and the minister that we who live in the south are wholeheartedly behind this project. We know the tremendous benefit it will bring to the north, and you cannot benefit the north without benefiting the south at the same time. I have had the pleasure of being up in that northern country, and I know the tremendous amounts of fish caught there. We can do with some good fish in the south, though we have our lakes there also.
As the hon. member has said, this development will establish a new frontier, and will mean a great deal to everyone in our province. I congratulate the minister upon pushing this measure forward, and I am sure it will prove to be of benefit not only to Manitoba but to the whole of Canada.


Agar Rodney Adamson: Mr. Speaker, I want to point out one thing to the minister. I am wholeheartedly in favour of this bill. The reason for the discovery of these nickel properties is that the original prospectors were looking for gold. This is just another example, therefore, of the usefulness of gold to the development of our country. Gold is the magnet which draws prospectors into the north. Gold is the magnet which is responsible for the development of other metals in our country. The original discoveries of the various mines in northern Quebec and around Noranda and Rouyn were the result of the search for gold. Gold has been and still is the main metal of our mining development, and this Lynn lake discovery is merely an example of its power to push back the frontier.
There is another thing that has made the development of this property possible, and that is the tremendously important work being done by Canadian scientists, many of them in the department of mines, with regard to geophysical surveys. Without the geophysical survey method it is doubtful-I believe "doubtful" is the right word- whether this property would have been developed as quickly as it has been. Possibly it might not have been developed at all. The geophysical method established what is known as the anomalies, and showed that there were large deposits of metal or substances heavier than the normal rock. The diamond drills definitely proved these deposits. First you have gold bringing the prospectors. Then you have the scientists, the geophysicists who showed that there was a body of different mineral there. Then you have the mining engineer who proved the property;

then the capitalist and miner who developed the mine. It is all one Canadian team which has done this job.
With regard to the whole railway question, Mr. Speaker, I expect that the profits which will eventually accrue to the Canadian people through the development of our mineral resources in northern Manitoba, Saskatchewan and possibly the Northwest Territories will be a far greater source of revenue to the railways than those obtained from developing the port of Churchill, probably many times more, and in this way will prove the wisdom of constructing the Hudson Bay railway.
It will do one more thing which we must bear in mind. It will show that the western provinces have an enormous potential so far as mining is concerned. We used to think of the three western provinces as being tied to a wheat economy. The disasters which resulted from trying to run that great area on a one-crop economy have in the past brought financial problems and despair. In my opinion, this development of the rocks of the prairies will prove to be of greater value in the next quarter century than the wheat economy for the same period.


[Stage Direction]
Motion agreed to, bill read the second time and referred to the standing committee on railways, canals and telegraph lines.


[Stage Direction]
The house resumed, from Wednesday, June 6, consideration in committee of the following resolution-Mr. Lapointe-Mr. Dion in the chair:
That it is expedient to introduce a measure to amend the Returned Soldiers Insurance Act for the following purposes:
To strike out from the act certain, parts that no longer apply due to the fact that the time of taking out new contracts of insurance has expired;
To increase the amount of insurance moneys payable under the policy at the time of death of the insured;
To reduce to some extent administration difficulties now found in the act and to bring the act more in line with the Veterans Insurance Act in the matter of beneficiary restrictions and particu larly in the manner of changing of beneficiaries and altering mode of apportionment of insurance;
To remove certain restrictions respecting the payment of insurance benefits to the estate of the insured; and
To waive premiums on life contracts when the insured reaches his eighty-fifth birthday.
James MacKerras Macdonnell: May we have a statement on this matter?


Mr. Mulch:: When this resolution was introduced on June 6, the minister made certain explanatory remarks with respect to it. Hon.
Returned Soldiers Insurance Act members will recall that he said this is the original Returned Soldiers Insurance Act which was passed at the end of world war I. The amendments contained in the bill are basically to delete certain parts of the act which are no longer operative and to bring it in line with a similar act dealing with the second world war: It is proposed to send the bill to the committee on veterans affairs for study.
There is nothing much I can add at the moment to what the minister said when the resolution was introduced. The main financial change is to make it possible to pay $2,000 rather than $1,000 on the face value of the policy, which conforms with the proposal in the second bill, and to continue paying the balance of the contract on an annuity basis.


Percy Ellis Wright: The resolution states that the purpose of the bill is to remove certain restrictions respecting the payment of insurance benefits to the estate of the insured.
I have had some correspondence with people who have been insured under the old Returned Soldiers Insurance Act and who were having difficulties with respect to this particular matter. Can the parliamentary assistant give us some explanation of just what is contemplated under this change?


Leslie Alexander Mutch: The main change is the one I mentioned a moment ago, that whereas it is at present possible to pay only $1,000 in cash and the balance of a contract in the form of an annuity over a period of years, it is now proposed to pay $2,000 in the original payment. That is the principal one. The second change affecting payment is that some of these contracts were on the pay-life basis. It is now proposed that all payments shall terminate at the age of eighty-five, on the pay-life contracts.
One other change that I should perhaps mention is this. There has been some little difficulty in dealing with the total disability clause, and it is proposed to make it conform to the bill which recently went through this house declaring that in the case where total disability is for one year, it is presumed to be permanent.


Mr. Herridge:: It is intended to increase the amount payable at death from $1,000 to $2,000. Is that intention based on the government's appreciation of the fact that the dollar is worth only fifty cents?


Leslie Alexander Mutch: The former statement is correct.


The Chairman:: Shall the resolution carry?


James MacKerras Macdonnell: No. On
June 6 I asked the minister a question which is reported at page 3791 of Hansard as follows:
I should like to ask the minister if he will give us some figures showing just what has been the extent
4216	HOUSE OF
Returned Soldiers Insurance Act of the operations under the Returned Soldiers Insurance Act which, I understand, affected the situation after the first war, and also what has been the extent of the operations of a similar kind since the second war.
I realize that the matter will come before the special committee, but I think it will be interesting for the committee of the whole to have these figures before the bill to be based on the resolution goes to the special committee.


Leslie Alexander Mutch: As to that, Mr. Chairman, may I say that I was not present in the committee of the whole when the questions were asked, and I did not ask for the information so as to bring it with me today. I was not aware that it had been asked for in the committee of the whole. When the bill is before the special committee, however, the administrator of the act will be present and will be prepared to answer questions. I should point out that the committee uses Hansard, and that there will be an opportunity again in the house for members to satisfy themselves with respect to it. I might point out that the special committee has now concluded its deliberations, with the exception of these insurance bills, and is waiting for this one to be referred to it. I am sorry that I did not have the figures available this morning.
Resolution reported, read the second time and concurred in.
Hon. Douglas Abbott (for the Minister of Veterans Affairs) thereupon moved for leave to introduce Bill No. 389, to amend the Returned Soldiers Insurance Act.
Motion agreed to and bill read the first time.


Mr. Speaker:: Do I understand that the house wishes that this bill be read the second time now?


Leslie Alexander Mutch: I should like to have it sent to the special committee.


Some hon. Members:: Agreed.


Douglas Charles Abbott: the second reading of the bill.


James MacKerras Macdonnell: I am not
going to object to this procedure, but it is a highly undesirable practice; unless it is a case of real emergency, I think it is a pity that consent should be asked. If consent is refused, it almost seems as if we were grudging and un-co-operative. I am not objecting to it, but I am raising this point for future consideration.


[Stage Direction]
Motion agreed to, bill read the second time and referred to the special committee on veterans affairs.


Douglas Charles Abbott: that the house go into committee to consider the following resolution:
That it is expedient to bring in a measure to provide that the Minister of Finance may, out of moneys provided by parliament, make certain grants to municipalities in respect of federal property situated therein.


Mr. Speaker:: Is it the pleasure of the house to adopt the motion?


James MacKerras Macdonnell: Should we not have a statement from the minister?


Douglas Charles Abbott: I am in the hands of the house, Mr. Speaker. The bill which will be founded on this resolution puts into statutory form order in council P.C. 741 of February 17, 1950, which authorizes grants to municipalities in lieu of taxes on federal properties under certain circumstances.
The house will recall that for the first year -it may be two years now-we provided the necessary funds by an item in the estimates. But at the time I announced the new policy and the formula upon which these grants would be continued, I said that at the appropriate time a bill would be introduced to provide for permanent legislation for the making of these grants. I had contemplated making a brief statement on the operations of the act when the bill was called for second reading. I thought perhaps the house might like to see the bill, that I would -make a brief statement on second reading and it could be discussed then. But I am quite prepared to make that statement now if the house prefers it. It seemed to me that, at this stage of the session, matters might be expedited if we got the bill before the house. But whatever the house wishes is agreeable to me.


Donald Methuen Fleming: Let us have it now.


James MacKerras Macdonnell: If it would meet with the convenience of the minister, I think we might have the statement now.


Douglas Charles Abbott: It is quite satisfactory to me. My suggestion was just an endeavour to expedite matters. Perhaps the committee on rules will provide some help in that respect.
As I said, this bill puts into statutory form the provisions of order in council P.C. 741 of February 17, 1950, which authorizes grants to municipalities in lieu of taxes on federal properties under certain circumstances. Hon. members will recall that this -new policy announced by the government in November, 1949, was given parliamentary sanction by means of a vote in the 1950-51 estimates which

was governed by the provisions of the order in council to which I have referred. Both in November 1949 and during the past session I undertook to put this policy into statutory form during this session of parliament.
The policy of making grants in lieu of taxes to those municipalities in which there are abnormal concentrations of federal property has been a new venture, and, as in all new ventures, there have been some delays and a few misunderstandings during the first year of its application. I am satisfied, however, that this first year of practical experience has shown that the general principles and policies laid down have worked well and have given a large measure of satisfaction to the municipalities concerned.
The grants authorized by the bill are related to federal properties considered necessary for the functioning of government, but not including properties administered by crown corporations, commissions, boards or agencies established to perform special functions, such as the national railways, the national harbours board, Canadian Broadcasting Corporation, and the like. These companies, commissions, boards or agencies have been instructed to negotiate arrangements with municipalities for allowances in lieu of taxes that are fair and equitable having regard to all relevant crcumstances.
The grants provided by this bill are of three kinds: ordinary grants in lieu of general and school taxes; grants which provide a measure of relief to municipalities for loss of revenue in cases where taxable property has been acquired by federal government and thus converted into tax-free property; and grants in lieu of special assessments for local improvements.
The ordinary grants are governed by the formula which I referred to in my statement of November, 1949. Under section 125 of the British North America Act no lands or property belonging to Canada are liable to taxation. This is a sound general principle, since most federal properties exist to provide a definite service to the citizens of the communities in which they are situated. We have to realize, however, that with the expansion of functions and the growing complexity of government, concentrations of government property have developed in certain municipalities, and that in many cases these federal offices or properties serve a national or regional purpose.
It would be quite impracticable to look at every piece of federal property and decide whether or to what extent it serves primarily a local function or a regional or national function. We have therefore had to fall 80709-2682
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back on the degree of concentration of federal property in a municipality, together with an appreciation of the burden which it imposes upon the municipality, as the test to be applied in arriving at a basis for ex gratia payments.
Our preliminary surveys indicated that, in total, federally owned properties constituted about four per cent of the value of all properties in the municipalities affected. We therefore took this four per cent as being "normal" and decided to base our grants in lieu of taxes on the amount by which the value of federal property exceeded four per cent of the value of all property in a municipality. The formula for ordinary grants set out in P.C. 741, and now incorporated in this bill, gives effect to this principle.
There are, of course, many types of federal property which confer obvious and substantial benefits on the local commqpity, such as parks, museums, irrigation works, reforestation projects, breakwaters, and aids to navigation. In respect of such properties as these the government will, of course, make no ex gratia payments to the municipalities in which they are situated.
There are also provisions for appropriate reductions in the grant in cases where the burden imposed upon the cost of municipal government by a federal property is not material, or where the government does not accept from a municipality services which the municipality customarily gives to taxable properties.


Mr. W. H. McMillan (Welland):: I agree with the resolution, but I am interested in federally owned properties in the municipalities which so far at least have not been eligible to receive any of this money or these grants. I refer to a modern inland navigable canal with lands, raceways, together with buildings for weir control, bridge control, elevators, power houses, electrical buildings and so forth, which in many cases far exceed the four per cent suggested as necessary by the Minister of Finance.
Hon. members may wonder what services a municipality may have to render to a oanal. I know of some municipalities where police protection has been called so often by the canal employees and by others that the canal property has become part of the regular beat by car of the municipal police. Fire departments too are on call for fires and for drown-ings. They maintain resuscitation equipment, small boats and grappling equipment in order to recover bodies of those drowned. A dozen calls or more a year made by a fire department during a navigation season is quite a considerable service to render to a canal,
4218	HOUSE OF
Municipal Grants Act particularly when the whole fire department might be engaged in relays of four or five men each for a period of twenty-four to forty-eight hours in recovering the body of someone who has been drowned in one of the canal pondages or weirs.
In the Niagara district we have the Welland ship canal, which runs across the counties of Welland and Lincoln. It runs through the city of Welland and the towns of Port Colborne and Thorold, and several villages and townships. I admit that a fair number of people are employed in the operation of the canal, and also in the industry that has settled in the Niagara district because the canal is there. But on the other hand, many of our municipalities provide services, and they also assume much greater cost in their own operation because of the canal. I think that at least some of these costs should be assumed by the people of Canada as a whole.
With the increasing canal traffic there is much inconvenience to road and pedestrian traffic. It is acute, particularly in the city of Welland. Something better will have to be evolved to deal with this situation, which is becoming worse year by year, and it will be much aggravated when and if the St. Lawrence seaway is completed. Even now the bottleneck of traffic is very bad. I was told that in one twenty-four hour period last fall when the canal was busy the bridges were up slightly over six hours in twenty-four hours.
The city of Welland has to employ extra police to deal with this traffic. The municipalities also provide police protection to ships and to canal property generally. On frequent occasions I have seen our municipal jails and the county jails taxed to capacity by those who have violated the laws in connection with the operation of the canal. Our municipalities also provide fire-fighting services to ships and to canal property.
Our larger urban areas will require two sewage disposal plants instead of one, that is, one on each side of the canal. As hon. members know, these plants are not only expensive to build, but are costly to operate. They must also have fire-fighting equipment on each side of the canal, because of the uncertainty of being able to cross the canal on short notice. In places our townships must have two roads instead of one, a road on each side of the canal.
The present Welland canal was completed in 1931. In Port Colborne it assumed a new course. It went down through the main street. From lake Ontario to a point above Thorold it also assumed a new course in ascending the Niagara escarpment. This


means that in some places we have the present canal and the remnants of other canals. Therefore in certain areas we have much crown property held in respect of these canals.
I am not too familiar with conditions existing in other municipalities, but a year ago, when these grants were first announced, I submitted a brief to the Minister of Finance, and I am sure that this brief contained many features common to other municipalities along the Welland ship canal. For instance, in Thorold, with a total area of 1,435 acres, 500 are taken up with crown lands. About 40 acres have been turned back to the town, still leaving 450 acres of crown lands. We get no local improvement assessments in connection with streets facing the canal property, and the taxpayers maintain the roads crossing the canal property.
Around 1910 and later the government expropriated streets in the towns, in which expropriation the towns acquiesced. I cannot help but pay tribute to the business acumen of the department which has charged us for water services and power lines passing under and over some of the streets that were obtained for nothing. My mind has always been given to research, and I find that certain street allowances were afterwards sold for cash, the same streets that had been expropriated for nothing. I am not complaining about this, because I know the present Minister of Transport knew nothing about it. I could only think ill of him if this condition persists.
The Welland canal is of benefit to the people of Canada as a whole, and we feel that the people of Canada as a whole should bear some of these costs. The Hydro Electric Power Commission of Ontario has recognized a similar condition in the neighbouring city of Niagara Falls and the adjoining township of Stamford, because they make a payment in lieu of taxes for the power canals and the power lines running through that territory.
I appeal to the Minister of Finance to include canal property in this bill and thus give consideration to the municipalities located along the Welland ship canal.
At one o'clock the house took recess.
The house resumed at three o'clock.


Donald Methuen Fleming: 
Douglas Charles Abbott: I was speaking of all crown agencies. I simply used those two by way of illustration.


Donald Methuen Fleming: I quite appreciate that. I am not confining my observations to those two at all. The minister indicated that as to those two, and I take it others in a similar position, they are to be free to negotiate with the municipality to make a grant to the municipality. What will be the basis upon which the grant will be arrived at we are not told. I think it is safe to say, in the light of past experience in such matters, that they will not be paying the full taxation rate that they would be paying if they were private occupants or owners of the same property in the municipality. It seems to me that in a case of that kind, where a crown agency is directly competitive with some taxpayer, there is no reason whatever to justify this continued assumption on the part of the crown of its right to exemption from municipal taxes.


On the subject that is close to the concern and thought of many hon. members, housing, I recall the experience that many municipalities had with respect to what would have been municipal taxes on housing. Both in the case of Wartime Housing Limited and Central Mortgage and Housing Corporation, you will recall, Mr. Speaker, that on the properties owned by these corporations, erected by them very often on land contributed by the municipality at $1 a lot, there were no taxes payable, and all that the municipality received was a small grant in lieu of taxes. That small grant in many cases, certainly in the case of the larger urban municipalities with very heavy expenses of municipal government and the heavy cost of municipal services, had the result that they did not receive more than one-third of what they would have collected from the same properties if they had been owned by private taxpayers. There cannot be any justification for the continuation of that kind of treatment of the municipalities.
The municipalities are discharging functions that are vital. When I say that I do not mean only that many of the services they provide are essential to the conduct of civilized life, such as health, education, police and fire protection, welfare services, sewage disposal, and so on; I am thinking also of the vital contribution the municipal government makes in this country to the functioning of democracy.
For many years the costs of municipal government have been soaring, but the taxation base has remained virtually unchanged. Apart from licence fees and a few trifling incidentals, that base is confined to the taxation of real estate. With the pyramiding costs of municipal government; with more and more services demanded by the people, which services in many cases can be best and most efficiently rendered by the municipal governments, since they are closest to the people, it seems to me extremely unfair that when the federal government moves in and occupies property in the municipality, that property should be exempt from taxation. Especially is that so where it is being used for such purposes as I have mentioned, those which are competitive with the interests of private taxpayers, and those which are revenue-producing. So I say we must have regard to the fact that while the cost of municipal government has been increasing by leaps and bounds, the source of revenue has been virtually frozen. Thus when properties in these municipalities are occupied by the federal government or its agencies you have situations which are fraught with the greatest danger to the solvency of the municipalities.

I express the opinion that the formula the minister is proposing to continue does not meet the requirements of the municipalities. I do not believe it is fair or adequate, nor is it based upon a realistic appreciation of the need.
In the last analysis I suppose dollars and cents count in matters of this kind. In referring to the estimates of the department I was interested in item 127, under the heading of grants to municipalities in lieu of taxes on federal property. The minister is proposing only a slight increase this year. The estimate last year was $1,655,000 while the amount parliament is being asked to appropriate for the same purpose this year is $1,845,000, an increase of $190,000. Reference to page 173 for the details shows that of this total in 1950-51 the grants to municipalities amounted to $1,600,000. This year it is estimated that they will amount to $1,800,000, an increase of only $200,000. Measuring $1,800,000 against what the municipalities of this country lose in taxes through federal occupation of property, it seems to me that even to mention figures like that reveals at once their utter inadequacy.
Therefore, Mr. Speaker, while welcoming in principle a statute to deal with this matter instead of continuing the expedient followed heretofore of passing an order in council and providing an amount in the estimates, I do urge that provision to meet the legitimate claims of the municipalities ought to be on a far more adequate scale than can possibly be the case with figures like these.


Mr. Angus Maclnnis (Vancouver East):: Mr. Speaker, I was not in the house this forenoon when the minister introduced this resolution; and since there will be a debate when the bill is introduced I wish at this time only to say that I support completely the points just made by the hon. member for Eglinton (Mr. Fleming). Those of us who have had experience with municipal life, and who are watching the struggle of municipal governments today to provide funds for the many things for which funds are required, must be aware of the difficulties with which most municipalities are faced. I suggest, before the bill is introduced, that there is only one fair way by which the federal government can pay money in lieu of taxation on federal property. That is, this property should be assessed the same as other property in the municipality, and the dominion government should pay its fair share of the taxes. I am quite sure that anything short of this will never meet the requirements of the municipal authorities. I suggest that would be the fairest way and really the only acceptable way to deal with this matter.
Municipal Grants Act


Mr. H. P. Cavers (Lincoln):: I desire to say a few words in support of the case made out this morning by the hon. member for Welland (Mr. McMillan) in regard to certain lands made available to the federal government for the construction of the Welland ship canal across the Niagara peninsula. To a large extent the canals built in Canada have followed the original watercourse, but in the case of the Welland ship canal we find that the lands taken by the government cut across the face of the Niagara peninsula. These lands include many valuable fruit and farming areas, and even extend through some of the larger municipalities in that district. I refer particularly to the towns of Thorold and Port Colborne, and the city of Welland. These lands that have been taken for federal purposes are lands which otherwise would be assessable for municipal purposes. The municipalities have been deprived of their rights to levy taxes on these particular lands. The argument has been put forward that a structure such as the Welland ship canal is of great benefit to the commerce of the country, and in particular to the district in which it is located.
I believe that in addition to the great good that comes to the dominion and to the locality, the local municipalities are required to provide many services for the federal institution. One of the most costly services provided for the Welland ship canal is police protection. The northern part of the Welland ship canal passes through the township of Grantham which is in the constituency I represent. The police force maintained by the township of Grantham is, on occasion, required to spend a considerable time providing police protection for the ships, and the seamen engaged on those ships, which pass through the canal. Then, there is the matter of fire protection and life-saving services which occasion considerable expenditure. I am informed by the mayor of the city of St. Catharines that it costs the fire department $250 each time it responds to a call in the township of Grantham. It can be seen that this adds considerable expense to the municipalities concerned. In addition to that, the firemen are sometimes called to the canal for the purpose of conducting dragging operations to recover a body.
The municipalities affected are required to provide sewage disposal, and this is an additional cost. Traffic bottlenecks are created because of the canal. At Homer, on the Queen Elizabeth way, where this large traffic artery of the province of Ontario crosses the Welland canal, traffic officers are required to see that traffic moves in an orderly fashion. The same situation applies at Welland where traffic on the main street of the town is held

Municipal Grants Act
up for many hours during the day. The same condition occurs in Port Colborne. This traffic situation comes into the picture again when municipalities are required to maintain two roads, one on either side of the canal right of way.
Something has been said about the matter of income to the federal government. I believe that the federal government does derive some income from thp Welland ship canal. Within the last three or four years there has been established at Port Weller a shipbuilding plant in the drydock owned by the Department of Transport. I assume that a rental is paid. I believe it is a fine thing to have an industry of this kind, which provides employment for the people of our district, but I point this out because I believe some revenue is derived from this undertaking. Then there are canal lands which have been expropriated but which are no longer used for canal purposes. These lands have been conveyed, for a consideration, to individual owners, and I am told that in some cases the lands that were acquired at low rates have been sold at considerable profit to the department concerned. I urge the Minister of Finance, in the bill which will follow this resolution, to give consideration to providing grants for municipalities in respect of lands taken for federal purposes.


Mr. J. W. Murphy (Lambion West):: I
should like to say a word on this subject. I happen to be one of those in whose constituencies there are crown companies, in my case the Polymer Corporation. I do not need to say that we appreciate the Polymer Company being there, but I believe we have to understand, as apparently some people do not, that while a great industry creates a lot of employment it also brings a lot of headaches in the way of increased education costs, highway costs, police and all that sort of thing. Up until the first of the year the Polymer Company was in the township of Sarnia, but since the amalgamation it has been situated in the city.
Since the construction of this industry in Sarnia, small annual grants have been made. I believe they started at $5,000 or $8,000, and the last one was around $10,000. I should not like the minister to take these payments as the basis for future adjustments. At the time the representations in connection with the grants were made, they were made primarily on the basis of roads. As a matter 
of fact, there was an urgency to have the plant completed, and like most municipalities the township had bylaws governing the time of the year when trucks could use the highways. I happen to be one of those who made the representations to Polymer for a grant towards the upkeep of the roads. With regard to education, the costs became so high so quickly it was necessary for several of the school sections to go to the province to get grants to help them. One school section which had one schoolteacher was obliged, within two or three years, to add three more rooms to the school.
I do not know whether the minister thinks it fair, in the final stages of the discussion on the resolution, to consider what aid could be given to municipalities having such a crown corporation. This aid is especially necessary in connection with roads and education costs. A great many of the employees of the Polymer Corporation still live in the township. I hope the minister will make some comment on this. According to the statement of the Polymer Corporation, the total cost of the fixed assets was $57,853,906; depreciation reserve totalled $24,217,793, leaving a cost less depreciation of $33,636,113. While the cost of the land is small, I am not sufficiently familiar with the assessment act to know how machinery and equipment are assessed. I have an idea that they are exempt. I believe that roads and buildings, electrical connections and so on are taxable. I do not know whether or not it would be fair to ask the minister to look at the statement, and say what the assessment might be.


Douglas Charles Abbott: I did not want to interrupt
my hon. friend, Mr. Speaker, but he perhaps does not appreciate that the payments by crown corporations for taxes do not come under the measure to be founded on this resolution. I announced some time ago, as a matter of government policy, that these various crown agencies, crown companies and the like, were instructed to make with the municipality in which they operated appropriate arrangements for the payment of moneys in lieu of taxes but they are not provided for under this act or the item in the estimates which relates to it.


John Lambert Gibson: Mr. Speaker, I am going to take a rather unusual position today, inasmuch as I am not speaking for the people of Comox-Alberni but

rather as a taxpayer here in Ottawa; unfortunately I am one. I do not know who is to blame for this terrible situation we have in this city with regard to municipal taxes. If I thought it was the minister, I am afraid that I would be tempted to make a kind of rough speech; but I am not convinced that it is entirely owing to the improper basis of taxation on federal government property that is, in fact, the cause of the difficulty which we experience here.
I well appreciate the fact that the federal government provides many services to this city of Ottawa such as maintaining the parks, driveways, the museum, and all the sights we have here that cost the municipal authorities nothing. But it seems to me that the taxes here have got into the position that they are almost confiscatory. They are actually double what they are in the great city of Vancouver. I of course appreciate the fact that Vancouver does not supply the heat, the cold and the flies that we get here as part of our municipal services. But it seems to me that the federal government surely cannot be treating this town fairly when the taxes in the city of Ottawa are double what they are in the city of Vancouver.
I have a three-bedroom home out here on the federal driveway. The driveway is maintained by the federal government, but I can say that on my three-bedroom home I pay a tax of $760 a year; that is for land tax and water tax. The sum of $760 a year is a great deal of money or it used to be considered a great, deal of money. I have a colleague, also from British Columbia, who has a modest family home on a fifty-foot lot, and he pays $550 a year. I think hon. members generally do not appreciate the terrific scale of taxation that is in effect in Ottawa. Actually I am afraid that many civil servants will contemplate going up the Gatineau and putting up a wigwam, because I am almost certain that a man earning a normal salary cannot afford to pay his civic taxes.
I am not going to blame the minister for the situation. It is probably caused by a combination of circumstances. But it seems to me that the government, being the largest employers here in Ottawa, would be well advised to take an intelligent interest in this great problem that concerns every citizen of Ottawa.


Mr. H. O. White (Middlesex East):: Mr. Speaker, I wish to say a word or two on this question of taxation of federal property and the position in which municipalities find 80709-269
Municipal Grants Act
themselves. I think I have mentioned this matter on a couple of former occasions. But since that time the Minister of National Defence (Mr. Claxton) stated, on June 7, that some 75 acres were going to be added to No. 27 ordnance depot at London. That addition will affect London township. Continued expansion is going on at Westminster hospital in Westminster township. Certainly the income tax building at London, Ontario, went out of the ownership of private individuals in Montreal and is now a federal building. That is a further loss of, I believe, some $8,000 in taxes to the city of London. If this trend continues year after year, we are going to get to the point where there will be few people left to pay taxes, and a great deal of taxes to pay. 1 hope the minister will review this whole question because there is getting to be a great concentration in London and London district, because of their importance in western Ontario.
Motion agreed to and the house went into committee, Mr. Beaudoin in the chair.


Donald Methuen Fleming: Will the minister indicate the total paid out, during the fiscal year, of the $1,600,000 that was appropriated for this purpose? If the list is not too long, will he give the municipalities that received any grants? If the list is long, perhaps he could indicate the number, and some of the larger amounts paid, including Ottawa.


Douglas Charles Abbott: It is not too long, Mr. Chairman. I should be glad to put it on Hansard if it were of interest. As to the total paid out, the figures here are $1,578,251.13. That covered the ordinary grants under the four per cent formula and, second, grants in lieu of taxes on government grain elevators-that is, as distinct from properties owned by harbour commissioners or independent corporations; transitional grants respecting newly-acquired properties and grants in lieu of special assessments for local improvements. The biggest grant was, of course, to the city of Ottawa, amounting to $962,392. The second largest was to the city of Halifax, amounting to $197,394; the third largest was to the city of Calgary, $43,300; the fourth was to Saint John, New Brunswick, $42,210. Perhaps it would be of interest to the committee if I were to place the list on Hansard. It is not unduly long. I should be glad to do that.


The Deputy Chairman:: Has the minister the consent of the committee that the list be placed on Hansard?


Some hon. Members:: Agreed.

Municipal Grants Act


Douglas Charles Abbott: The list is as follows:	the other hand, they were commissioned
Statement of grants made during fiscal year ended make some kind of deal. Is there any 31st March, 1951	basis on which that deal is made? What I
Ordinary grants under the 4 per cent formula:
Amherst, N.S	 $ 6,646.00
Calgary, Alta	 43,300.00
Dartmouth, N.S	 18,104.00
Esquimau, B.C	 19,175.00
Fredericton, NB	 11,711.95
Gloucester, Ont	 1,936.25
Halifax, N.S	 197,394.00
Lauzon, P.Q	 2,322.60
Little Current, Ont	 2,195.00
Moncton, N.B	 23,161.00
New Westminster, B.C. ...	27,089.00
North Vancouver, B.C. ...	8,212.00
Ottawa, Ont	 962,392.00
Pictou, N.S	 2,690.22
Prince Albert, Sask	 7,707.00
Richmond, B.C	 9,779.00
Saint John, N.B	 42,210.00
Senneville, P.Q	 3,904.39

Grants In lieu of taxes on government grain elevators:
Cory, Sask	 $	6,800.60
Calgary, Alta	 12,931.77
Edmonton, Alta	 18,074.92
Lethbridge, Alta	 12,020.62
Moose Jaw, Sask	 11,612.04
Prince Rupert, B.C	 12,746.85

 74,186.1
Transitional grants respecting newly acquired properties:
Maple Ridge, B.C	 $	126.00
Moncton, N.B	 266.70
Ops, Ont	 40.56
Regina, Sask	 658.20
Sidney, Ont	 571.73

 1,663.1
Grants in lieu of special assessments for local improvements:
Belleville, Ont	 $	1,716.01
Calgary, Alta	 1,352.74
Dartmouth, N.S	 28.88
Edmonton, Alta	 5,042.05
Grantham, Ont	 2,038.76
Halifax, N.S	 11,095.73
Hull, P.Q	 46,939.74
Kindersley, Sask	 403.00
Kingston, Ont	 429.86
London, Ont	 4,164.00
Maple Ridge, B.C	 ' 53.66
Moose Jaw, Sask	 53.00
Neepawa, Man	 134.50
Nipawin, Sask	 300.00
Prince George, B.C	 312.50
Red Deer, Alta	 969.87
Regina, Sask	 6,304.19
Saskatoon, Sask	 416.66
Three Rivers, P.Q	 128.31
Toronto, Ont	 8,874.13
Vancouver, B.C	 172! 12
Winnipeg, Man	 21,207.73
Woodstock, Ont	 334.29

	112,471.7

mean is this. Crown corporations perhaps have a certain basis for negotiating from the very fact that they are crown corporations and have to some extent the weight of the government behind them. Can the minister indicate whether there is any principle, shall I say, which is being followed? While I am on my feet, may I also ask this question: In applying this percentage across the board, does the department arrive at its own figures or does it take the assessment figures of the various municipalities?


Douglas Charles Abbott: As to the first question, I do not know that there is any fixed formula so far as crown corporations or agencies are concerned. They have been instructed to make with the municipalities arrangements on a fair and equitable basis. The reason for that is that the character of the operations of these crown corporations varies a good deal. For instance, the Polymer Corporation, which is in the constituency of the hon. member for Lambton West, is pretty well, one could say, an entirely commercial operation. There are, however, other crown agencies whose operations could be categorized as partly commercial and partly a general type of service. The arrangement therefore is that each crown agency negotiates its own tax arrangements with the municipality.
On the second point, as to the valuations,
I made it quite clear in my statement of November 14, 1949, that the crown must reserve to itself the right to establish the valuation. These are ex gratia payments and, for reasons which I think are fairly obvious, the crown could not put itself entirely in the hands of the local assessors. In most cases of crown property, not too much attention has been paid to the real value of the assessment because it had no practical significance in the past. But what has been done in the case of the different municipalities where grants are payable is for officials of the municipal grants division to confer with the local assessment authorities and to endeavour to arrive at an assessment which is accepted as mutually satisfactory. In one or two cases, I think here in Ottawa and in Halifax, we retained an outside real estate adviser to help in arriving at an assessment.


James MacKerras Macdonnell: The minister Mr.	(Greenwood): I appreciate
referred to crown corporations as being in a what the minister said about there being sort of betwixt-and-between class. They certain cases where crown property in a were not treated like ordinary taxpayers. On municipality was in the nature of an amenity [The Deputy Chairman.]

Municipal Grants Act
and might fairly go without taxes. As I Mr. Fraser: In the event of fire in govern-understood him, the minister took the case ment properties, what do you do? Do you of Polymer-	help out the municipalities on the cost?


Douglas Charles Abbott: Just as an example of a crown corporation.


James MacKerras Macdonnell: Yes. Was I correct in understanding that the implication of what he said was that Polymer, being a commercial enterprise, would in a measure at any rate be subject to the same taxation considerations as would another comparable enterprise in private hands?


Douglas Charles Abbott: I think the practice of Polymer would be that followed by a great many large industries of that kind which are established in various localities. Certainly in my own province it was quite common practice for them to arrive at special tax agreements with the municipalities, which would be frequently confirmed by legislation. In the case of Polymer, I know that they have been told, in common with other crown corporations, to negotiate an appropriate agreement for payment in lieu of taxes to the municipalities. It is not under this bill-my hon. friend appreciates that.


Joseph Warner Murphy: I know; I was wondering
whether the minister could tell us when this new principle begins. He has said that it applies with respect to crown corporations. Does it begin in 1950 or 1951?
Mr. Abbot!: I cannot say from memory, because the administration of it does not come directly under the municipal grants division, which is in the Department of Finance. It is a matter for the crown corporations themselves, and I will have to verify what the policy is.


Joseph Warner Murphy: Suppose the crown representatives and the assessment officials could not agree with respect to a crown company. What would be the procedure?


Douglas Charles Abbott: The government does not intervene directly in the case of negotiations with crown corporations. Since, as I say, in the case of federal property that is owned directly and property that is owned through the intermediary of a crown corporation, it is exempt under the British North America Act, the payment is ex gratia payment, so that in the case of a difference of opinion the government's valuation must stand.


Mr. Fraser:: Although the government's
properties are exempt, water rates have to be paid.


Douglas Charles Abbott: They do not have to pay water rates, but they do. We have always paid water rates and local improvement taxes.
80709-269g


Douglas Charles Abbott: Under the formula where the concentration of property is in excess of normal the government pays a grant to a municipality which is to cover the proportion of municipal services which government property receives.


Gordon Knapman Fraser: What I was getting at was the fire we had here a couple of weeks ago at which the whole Ottawa fire department was employed for some hours. Will the city of Ottawa be reimbursed for that?


Douglas Charles Abbott: I would not think so, no; we pay a very substantial amount to the city of Ottawa, nearly a million dollars, for certain municipal services, and I would think that would include the services of the fire department where needed.


Mr. Mott:: I should like to say a few words on this resolution. I compliment the minister and his department on the wonderful job they have done. I spent many years in municipal offices, and one of the things we had to contend with at all times was complaints based on grants in lieu of taxation, not only from the dominion government but also from the provincial government. In British Columbia we did go so far as to get grants in lieu of taxes on their property which was doing a commercial business. The only one which was placed in that particular category was the liquor stores, which are generally contained on small lots in the city or town. In my own city of New Westminster, British Columbia, I think our grant was around $27,000. That is the amount we received from the dominion government in lieu of taxes.
I do want to congratulate the minister and his department on the two civil servants who represented the department in making the final arrangements with our own city solicitor, the comptroller, mayor and council of the city. They speak of them in the highest praise. I am very sorry to hear that only a few weeks ago one of these civil servants passed away. I believe that the city's own assessor assessed the property in the neighbourhood of $30,000. The final agreement between the city assessor and the government's assessors was $27,000. The city received very favourably the amount set by the dominion government, and of those who represented the department and made the assessment they speak in the very highest praise, for the work that they have done. I think that the dominion government has taken a step in the right direction. If our provincial governments would only follow

Municipal Grants Act
they would also be taking a step in the direction that has been long needed in every municipality in the Dominion of Canada.
I am very glad to be able to rise in my place in the House of Commons and pass that praise to the department, and to those in the department who are doing that work throughout Canada. I do not think that the way it was handled in my city was any exception. All through the dominion they have done wonderful work, and I am sure they deserve all the praise that we can give them.


Donald Methuen Fleming: The matter of the basis on which crown corporations are making grants in lieu of taxes has a very direct bearing on this question. The minister has indicated that negotiations are authorized between the crown corporation and the municipality. I should like a little more light on the objective of the crown corporations in such a case. Is it, within the scope of government policy, a case of seeking to arrive at a fair grant, having regard to the general basis of assessments in the municipality, or to make some convenient arrangement with the municipality that may not necessarily have any direct reference to the prevailing rate of assessment throughout the municipality?


Douglas Charles Abbott: Well, I am afraid I have not been personally in too close touch with that aspect of it because, as I have said, this does not come under the municipal grants division of the Department of Finance. But in the statement which I made on November 14, 1949, outlining in more detail the proposed policy, I said this, as reported at page 1706 of Hansard of that date:
In the case of government-owned railways operated by the Canadian National Railways, agreements have been entered into with the cities of Halifax and Saint John for the payment of reasonable amounts in lieu of taxes. I understand that the Canadian National Railways will endeavour to work out similar arrangements with other municipalities through which the government-owned railway runs.
In general, as I have indicated, the policy will be to have crown corporations work out arrangements with municipalities which are fair and equitable under all circumstances.
That is the general policy, but I am afraid I cannot give my hon. friend very much more detailed information than that.


Donald Methuen Fleming: As a statement of principle it may be a very choice kind of statement to say that they are told to do what is fair and reasonable, but that can mean almost anything. I do not wish to prolong this discussion, but I would like to say that in such cases as we have been discussing, that is to say, crown corporations which are engaged in commercial operations, what would be [Mr. Mott.l
fair and reasonable in the way of payment on their part is a payment that would be equivalent to the taxes that would have to be paid if the property they are occupying had been occupied by a private taxpayer. Nothing short of that is fair or reasonable under the circumstances.
May I give you an illustration in my own city of Toronto? The Toronto transportation commission is municipally owned and yet in recent years it has been paying taxes on the properties it occupies in the city like any other private taxpayer. It was not always so, but that is the direction in which they have moved and that situation has existed in recent years. I think it is a sound principle to follow.


Douglas Charles Abbott: It is really only a bookkeeping operation, is it not?


Donald Methuen Fleming: The system is operated independently of municipal revenues, and has been for thirty years. It manages its own revenues and expenditures.


Douglas Charles Abbott: I think it would be desirable for accounting purposes, but the municipality owns the corporation and any profits would go to the municipality.


Donald Methuen Fleming: Profits are retained as
reserves by the commission. Without dragging the matter out further it seems to me that the fair principle to follow in a situation of that kind is to pay the same assessment as is paid by other property in the municipality.
One final word on the matter introduced by the hon. member for Comox-Alberni in regard to Ottawa: I know there are different aspects to this question, but I wish to say that I share with him the view that having regard to the extent of federally owned and occupied property in Ottawa, the extent of the services that the municipality is called upon to provide, and the vaulting rate at which municipal taxation and the cost of municipal services have soared skywards, the present grant to the city of Ottawa should be reviewed. I do not think by any stretch of the imagination it can be said to be adequate.


Joseph Warner Murphy: Mr. Chairman, I hope that the payments made by Polymer to the municipality in the past few years will not be used by any department as a basis for negotiation in connection with crown companies or federal properties. The payments made by Polymer have ranged from $5,000 to $10,000, which is only one-tenth or one-twentieth of what the taxes would be under a proper agreement. I repeat, I hope that in any negotiations between the department and any municipality these payments will not be used as a basis.


Mr. Balcom:: Mr. Chairman, this matter of municipal grants has been of great importance to certain cities across the country, and I might just mention my own city of Halifax. I was impressed with what the hon. member for Comox-Alberni and the hon. member for Eglinton have said with regard to the high fax rate in Ottawa. Considering the difficulties under which we operate in Halifax, I must say that our tax rate is much lower. It may be that the hon. members will consider coming down there to live.
I should like to re-emphasize the position of our city, which has been put forward on several occasions by the board of trade. The minister has been asked to give consideration to this matter and he has undertaken to do so. Fifty-one per cent of the properties in Halifax are non-taxable and the result is that the taxpayer must carry a much heavier load. I do not overlook the fine reception the minister has given to our delegates and myself personally when he has been approached in regard to this matter. He has been most considerate and the delegates have gone home satisfied that they were treated fairly. I thought that on this occasion I should say a word on behalf of Halifax when these grants are being considered.


Mr.   Baler@: Mr. Chairman, in considering the basis of assessment in any urban municipality, will the property of Central Mortgage and Housing Corporation be taken into account?


Douglas Charles Abbott: I believe so.
Resolution reported, read the second time and concurred in.
Mr. Abbot! thereupon moved for leave to introduce Bill No. 390, respecting grants to municipalities.
Motion agreed to and bill read the first time.



INCOME TAX ACT

[Stage Direction]
The house resumed, from Wednesday, June 13, consideration in committee of Bill No. 296, to amend the Income Tax Act-Mr. Abbott-Mr. Beaudoin in the chair.
On section 21-Rates.
Louis-René Beaudoin: There was an
amendment to this section moved by the Minister of Public Works.


Mr. Pearkes:: Mr. Chairman, I am sure
the members of the armed forces will appreciate the concessions which have been granted in this amendment. While it was hoped that they would be granted a complete exemption from income tax, these credits will go a long way toward meeting the
Income Tax Act
situation. The only observation I desire to make is to ask assurance that the benefits granted under this bill will apply to those who receive benefits under the various pieces of legislation which have been passed in connection with members of the special force.
It will be noticed that in the amendment the zone in which these benefits will apply is described. This credit is to be given to members of the naval, army or air forces of Canada who are on duty in a zone outside Canada prescribed by regulations made on the recommendation of the Minister of Finance. I should like to direct attention to P.C. 2930 which was promulgated on Monday, June 11, and which deals with the' areas in which the benefits under such acts and regulations as the special forces veterans benefit regulations, the Veterans Rehabilitation Act, the Veterans Insurance Act and the War Service Grants Act will apply.
In those acts and regulations the area in which they are applicable is defined as being service in a theatre of operations which means such service as the governor in council may designate from time to time. P.C. 2930 goes on to define what that area is in section 1 which revokes section 3 of the special force veterans benefit regulation as follows:
For the purposes of these regulations "service in a theatre of operations" means the service of a member of the Canadian forces from the time of his departure from Canada or the continental United States of America including Alaska to participate in military operations undertaken by the United Nations to restore peace in the republic of Korea until
(a) he returns to Canada or the continental United States of America including Alaska, or
(c) the unit with which he is serving, having ceased to participate in such operations, arrives at the place to which it has been assigned,
The point I want to make is that the benefits under this amendment should apply to everybody who is taking part in these special operations. The proposed amendment will apply to everybody who is taking part in these special operations. I suggest that it might be desirable not to make it applicable to other people who are not benefiting from the veterans legislation. One does not expect these benefits to be handed out to everybody. For that reason I wanted to draw this order in council to the attention of the committee. I believe there is sufficient flexibility in the regulations so that if the 27 th brigade or other special forces go to Europe an amendment could be made to the regulations by the governor in council..

Income Tax Act
He could designate as a theatre of operations any new area overseas where Canadians were taking part.


Douglas Charles Abbott: I think the definition my hon. friend has indicated seems to be a pretty good one for our forces in Korea. As he has pointed out, the section in the act is drawn in such a way as to leave flexibility so that by regulation, that is to say, by order in council on the recommendation of the Minister of Finance, the benefits of the section can be extended to other service personnel who may be serving outside Canada. Quite frankly I must say I have anticipated that if and when our brigade group is serving in Europe, let us say, a similar privilege would be extended to them. I agree with the hon. member that it is desirable that this benefit should at least be co-terminal with those who are eligible for veterans benefits, and it may well be that it should cover some wider ground.


Robert Fair: As one of the first members to bring this matter to the attention of the Minister of Finance earlier this session, I
want to thank him for the consideration he has given in the announcement he made not many days ago. I feel we owe this to our servicemen, and I hope it will be extended as far as reasonably possible to those men and women who may be in the fighting forces. It was a wrong that has been rectified, and I want to thank the minister for his con-* sideration.


[Stage Direction]
Amendment agreed to.
Douglas Charles Abbott: I do not want to hold up my own section, but perhaps members of the committee who are interested might find it of value if I were to put on Hansard, as I do during the budget speech, tables showing the effect that this tax will have on various ranks, and with various marital statuses. If I have the unanimous consent of the committee, I should like to do that.


Louis-René Beaudoin: Has the minister leave to put these tables on Hansard?


Some hon. Members:: Agreed.


Douglas Charles Abbott: 
Donald Methuen Fleming: There are several points I should like to raise with respect to section 22. In the first place, it will be noted that the section applies to foreign business corporations, and the effect of subsection 1 is to require an application of the kind contemplated here to be filed within 120 days
from the end of the year. The question immediately arises: Why 120 days? The Companies Act makes a clear distinction between those companies whose business is carried on abroad and those companies whose business is domestic. I would suggest that the flat provision of 120 days from the end of the year is not entirely fair to corporations whose undertakings are largely carried on outside Canada. I should like to refer to

Income Tax Act
section 112, subsection 1, of ithe Companies Act which reads:
At each annual meeting the directors shall lay before the company
(a) a balance sheet made up to a date not more than four months before such annual meeting: Provided however that a company which carries on its undertaking out of Canada may by its bylaws extend this period to not more than six months.
I suggest in the case of such a corporation, one which carries on its undertaking outside Canada, that similar recognition should be made in this section of the difficulty cf closing its books and making its return. I would urge that in that case the time allowed should be extended to six months.
Then there is a further question. In paragraph (b) of the proposed new subsection 4 of section 64, the benefit is narrowed by these terms to companies of an industrial, mining, commercial, public utility or public service nature. I should like to ask the minister why there is any necessity for narrowing this provision to companies of these particular natures. Why should it not be made broader?


Douglas Charles Abbott: The present wording is not very narrow. This definition was put in because it was called to our attention that one or two foreign business corporations, which had their head offices in Canada and which were paying some taxes here, in fact were carrying on their operations entirely abroad, but because of a technicality they might be subject to double taxation, and under those circumstances they would be obliged to remove their offices from Canada. We could not see any particular advantage to Canada in losing the taxes which they were paying. Therefore this latter part of the amendment, subsection 4, was provided to meet these cases. As my hon. friend is aware, there are not a great many of these corporations now. They are relatively few. There are one or two very well known ones. I suppose Brazilian Traction is one of the best known.
As to the first part of my hon. friend's question concerning the 120 days or four months, that provision was in the Income War Tax Act and has not been extended. Paragraph (ii) of section 1(b) is intended to be a relieving section because under the old section as it stood after the expiry of 120 days they simply lost their right to qualify as what we used to call 4-k companies, being foreign business corporations. Now they do not lose their status as such, but if they fail to file within a certain time and in the prescribed form there is a mild penalty for failing to do so within the normal period of 120 days.


Donald Methuen Fleming: Would it not be reasonable to allow them six months?


Douglas Charles Abbott: Well, 120 days has always applied to these companies, and for that reason we did not think of changing it.


Donald Methuen Fleming: When you look at the
recognition given by the Companies Act to the position of such companies, would it not be reasonable to put their tax position on the same basis?


Douglas Charles Abbott: I will have a look at it again; I confess the point had not occurred to me.


Gordon Knapman Fraser: Is that the end of their calendar year or their fiscal year?


Douglas Charles Abbott: The end of their fiscal year.


James MacKerras Macdonnell: It seems to me the request of the hon. member for Eglinton to have the 120 days extended to six months is reasonable unless there is something against it, particularly when you consider the terms of the dominion Companies Act which seem to me sound.


[Stage Direction]
Section agreed to.
Section 23 agreed to.
On section 24-Undistributed income on hand.
Donald Methuen Fleming: This relates in part to the subject matter covered by section 30, but I take it that if this section is now carried our opportunity to discuss the broad question of the distribution of these surpluses under section 30 of this bill will not be restricted.


Douglas Charles Abbott: Oh, no.


Donald Methuen Fleming: There is one specific point I would like to raise under subsection 5, which provides that this section shall be' deemed to have come into force on June 30,
1950.	In other words, it is made retroactive for practically twelve months, certainly ten months prior to the introduction of the budget resolutions. I am told that litigation is pending in which the definitions provided in section 24 and the new provisions there are likely to have a very direct bearing. For that reason I strongly urge that a section of this kind ought not to be made retroactive. Surely in legislation imposing taxation above all other kinds we should avoid retrospective enactment. In this case, in view of the fact that the rights of persons now engaged in litigation are likely to be affected by this enactment, I would urge that it should not be given retrospective effect.


Douglas Charles Abbott: I am told this date was selected because it is the date on which the definition of undistributed income was brought into the act. This is a pretty technical section, as my hon. friend will appreciate, and I am told that it was discussed with the tax foundation, who felt that it was satisfactory. It is really

Income Tax Act
corrective. Some of the provisions are relieving; some might be interpreted as being more restrictive, but I think on balance it is more relieving than restrictive. I am told that the appropriate date to bring in these changes is the date on which undistributed income was defined under our act last year.


Donald Methuen Fleming: Suppose the minister were a litigant who was affected by some of the more restrictive features of this amendment and did not receive the benefit of any of the less restrictive features.


Douglas Charles Abbott: Certainly I would not want to take away the right of anyone who is now in litigation, but the assistant deputy minister of national revenue who is sitting in front of me tells me he does not know of any such case and certainly I had none under consideration when this section was being prepared. It was not intended to legislate anybody out of their rights. Of course it only affects undistributed income.


Donald Methuen Fleming: Someone spoke to me the
other day, indicating that the rights of his clients were going to be affected by the retrospective operation of this amendment.


Douglas Charles Abbott: I would be surprised if that were the case. If my hon. friend wants it to stand I have no objection, but I would hope that we might pass it.


Donald Methuen Fleming: I do not wish to hold anything up at this stage of the session, but after all what purpose can there be in enacting retroactive legislation now simply because of the definitions introduced last year? It does not seem to me we should go back and change the definition as of that date.


Douglas Charles Abbott: Sections such as these are introduced as a rule because of representations made to us that this should be done. This section in fact reflects the departmental practice since this question of undistributed income was first defined in last year's act, and I really would be very much surprised if any matter now in litigation would be prejudicially affected by the provisions of this section.


[Stage Direction]
Section agreed to.
On section 25-Mining companies.
Herbert Wilfred Herridge: I would like to urge the
minister, in preparing his budget next year, to make some similar provision for those who are practising forest conservation and silviculture, because these are the people who will be providing wealth for future generations, from which they themselves will receive no direct benefit at the present time. I know the government is conscious of the need for forest conservation. So are many
people across Canada, and I do believe something should be done to assist those individuals who are doing something to benefit future generations. They are expending money which will bring them no direct benefit, and I feel that those people undertaking forest conservation are doing something very worth while. We know we have to protect our forests if we are to have a consistent yield of forest products. We have to protect them if we are to protect our water resources; and we have to protect our forests if we are to prevent land erosion through floods. Some exemption from taxation for those willing to do this sort of work on behalf of future generations would be a good investment because it would bring the country wealth in later years. It would also be a good investment because large sums of money would be saved which otherwise would have to be expended to repair water damage and soil erosion as the result of overcutting. I would like the minister to give his opinion on this suggestion, but before he does so I believe another hon. member would like to say a few words on the matter.


John Lambert Gibson: I know the minister has had this question and the lack of a forest policy for Canada brought to his attention already, and certainly I do not want to take the time of the house unnecessarily in presenting a point I believe his experts are studying now. I only want to point out that British Columbia is recognizing the fact that we must encourage people to plant timber for future generations. The provincial minister of mines and forests introduced a resolution at this session of the British Columbia legislature which provided for a two-thirds reduction in taxation on land which the owners would undertake to use as forest farms, and I should think the government here would be well advised to go along with that policy and cooperate in every possible way in this worthwhile project.
It is generally assumed down here, of course, that anyone taking up a forest management licence in British Columbia is getting something of great value and that as a result their capital interest in timber must be increased. Actually that is hardly the case. At the present time if the owners of standing timber in British Columbia enter into one of these forest management licences they must expect to have their present cutting rights abridged to a very great extent. It is only their realization that in the public interest they have a responsibility that could possibly justify their entering one of these contracts, because certainly the present generation will get no personal benefit. I was rather shocked to learn, as a

Income Tax Act
matter of fact, that the Department of National Revenue was imposing taxation on funds expended by timber companies in British Columbia on the mapping and planning of these forest management licences. It seems to me that is entirely inconsistent with the policy announced in this house by the Minister of Resources and Development, who said we were going to set aside $2 million for the purpose of assisting the provinces to take a forest inventory. I think we should co-operate with the provincial governments in every possible way, and with regard to timber we should take the same attitude that we take to oil and minerals. I would ask that the minister give this matter his usual able consideration.


Douglas Charles Abbott: I think I did mention at the resolution state-and if I did not I do so now-that this very important question is now being considered by my colleague the Minister of Resources and Development, and I believe he has been having some discussions with the provinces about it.


Herbert Wilfred Herridge: I am very pleased to hear that.


[Stage Direction]
Section agreed to.
On section 26-Right to file consolidated return.
Douglas Charles Abbott: I have a small amendment which I would ask one of my colleagues to move. It is to substitute in subsection 4 the following: "This section is applicable to the year 1952 and subsequent taxation years."


Alphonse Fournier: I move accordingly.


[Stage Direction]
Amendment agreed to.
James MacKerras Macdonnell: I am glad the minister has amended this section in one respect, and I very much hope he may amend it in another. I am troubled indeed that the right to file a consolidated return is to be done away with. We have had no explanation as to why this is being done. I am going to ask the minister to give an explanation, and then I wish to say something more. First I want to draw attention to two or three vital points in that connection. This is a right which has existed since 1932. I imagine we will all agree that if it is withdrawn now it will be extremely difficult to ever reinstate it. This practice has been followed by a considerable number of corporations, and they have actually paid an additional rate of two per cent for the privilege. Before I go any farther I wish the minister would give us the reasons for making this important change.


Douglas Charles Abbott: The principal reason of course is that, now we have introduced into the act the principle of carrying losses forward and backward, this has ceased to have the practical significance it used to have. Only in the case of a consistent loser would it be of any benefit. In the case of companies jointly controlled, having one company that never made anything and another one that nearly always did, there would be some advantage in consolidating and paying the extra two per cent in respect thereto. It was thought desirable to eliminate this provision from the act. There is no desire to penalize the comparatively few companies that are still availing themselves of this privilege. It is for that reason I am proposing that it shall not be applicable except to the 1952 and subsequent periods. This will provide ample time for such companies as are still using this privilege to make proper arrangements so that they will not be unduly penalized.
I may say thait the amendment to become effective in 1952 was introduced as a result of representations made to me that it might be difficult for one or two companies to so re-arrange their affairs that they would not be penalized.


James MacKerras Macdonnell: I am still bothered by this, because as I gathered from the minister he does not regard it as a very important matter. He has not give any overwhelming reason for the change, and I should like to answer the reason he has given, because I have representations on that point to the following effect.
The general assumption that the introduction of loss carry-over provisions has eliminated the advantage of consolidated returns is no doubt substantially correct so far as a comparison of aggregate revenue yields is concerned. But it does not apply to certain advantages of a more technical character, as in cases where consolidation permits separate incorporation of a certain part of a business for reasons of provincial law, or meets the case of a chronic loser. In such cases the use of consolidated returns allows flexibility of corporate organization which may be advisable for reasons of business where tax considerations are secondary. Again I want to put this point to the minister.
I am doing it because it does seem to me a case where the point is substantial, and unless there is a great balance of convenience I hope the minister will listen.
The next point I wish to make is connected with the proposed repeal of section 75. As I understand it, that is not dictated by calculation of alternative revenue yields, and it is therefore primarily a matter of administrative convenience. If that is the

correct inference, I would strongly urge that the convenience and established practice of the taxpayers concerned, whoever they may be, should receive at least equal consideration before this amendment proceeds further. May I earnestly say to the minister that it seems to me the reasons that have been given are not at all conclusive. Unless some real disadvantage is suffered by the public service, surely the convenience of the long-suffering taxpayer could receive some consideration.


Douglas Charles Abbott: I considered these questions because of similar representations made to me by the tax foundation. I felt that, on balance, this was a case where we should do away with this provision.


Donald Methuen Fleming: I must express regret at the decision made by the minister. However, if he is not prepared to change his mind I shall pass to another point on this section. Has the minister noted the form of the draftsmanship of this section? Where is this section going to go in the act? It does not purport to be amending any section in the act at the present time. All it does is repeal section 75, and then it goes on to enact a new provision without indicating where it is to go in the act.


Douglas Charles Abbott: Section 75, of course, of the act which is repealed is the section giving the right to file consolidated returns. This section 26, subsection 2, will not go into the Income Tax Act at all. It is purely a transitional provision. It will provide for the clearing up of matters by the companies who have been filing under this right. During 1952 and subsequent periods, section 75 will cease to be in the act.


[Stage Direction]
Section agreed to.
Sections 27 to 29 inclusive agreed to.
On section 30-Corporation election.
Donald Methuen Fleming: Section 30 is a very
important section. I believe there is a number of points that are likely to arise under this section. This is the section by which the government proposes to extend in one case, and narrow in another, the right given to corporations last year to distribute surpluses on the payment of a 15 per cent tax thereon. On the one hand I believe the committee will agree with the minister in his budget statement that the amendment made last year in the enactment of section 95A fully justified itself in the use made of it. Undoubtedly more use was made of it than the minister contemplated at that time, because the device of incorporating stockholding companies for the purpose of qualifying as private corporations
Income Tax Act
with no more than 75 shareholders was hardly foreseen last year by the minister, and certainly the wide use that has been made of it. In proposing now to extend this right more widely, I believe the minister is only recognizing what has largely become an established fact.
At the same time, one wonders why the minister selects a broad class of corporations as an exception to what has now become the general rule that any corporation may distribute its accumulated surplus. This exception is found in subsection 2, lines 36 and 37 of the bill, and instead of being a private corporation as defined by the act, namely one having not more than 75 shareholders, these narrowing words are used:
A corporation other than a subsidiary controlled corporation.
So that there are no benefits to be extended to a corporation where the dominant shareholder is a corporation. But I think that this exception, made to what has now become the general rule, does not adequately take into account the position of minority shareholders. These minority shareholders may be large in number. It may be that the control held by one dominant corporation is a very tenuous measure of control indeed, yet in such a case the position of the minority shareholders receives no consideration whatever under this legislation. As a matter of fact, I think one could go further and say that corporations which derived benefit under this section will now lose it under the narrowing provisions of this amendment. I can think of a number of corporations which acquired the right to pay the 15 per cent tax on distributed surpluses last year which will lose that right under this amendment.
For that reason, Mr. Chairman, I would urge that if the provision has justified itself, as the minister indicated in his budget speech, and as I think most people recognize, then there is no reason for introducing this qualification. Why not make it general, and in that way avoid doing injustice to the minority shareholders? There are other aspects of this matter which I should like to discuss, but perhaps it would be more orderly if we took them one at a time.


James MacKerras Macdonnell: May I add
a word before the minister answers the member for Eglinton. I should like to endorse as strongly as I can what the member for Eglinton has said. It seems to me that this section is discriminatory to a high degree against minority shareholders; in other words, against people who are apt to be the small holders. Unless there is some overwhelming reason for it, I do not think there is

Income Tax Act
any justification, as you are leaving the minority shareholders, perhaps 49 per cent of the corporation, with what was a valuable right, conveyed so short a time ago, now entirely destroyed. I earnestly hope that the minister will see his way clear to deal with the matter.


Douglas Charles Abbott: As my hon. friend appreciates, it is a loophole provision. There is a wide-open street there which we were afraid, without too great difficulty, could be made the subject of great abuse. This was a new provision introduced last year. As members of the committee have said, it introduced a special privilege to enable the distribution of surpluses on payment of a 15 per cent tax. I think it was a desirable piece of legislation. It has now been extended to public companies. It may be, to use the language of the tax foundation report, that the weight of the plug may be out of proportion to the size of the loophole, and we are prepared to explore alternative measures that can be entertained at this stage.
I will be prepared to pursue alternative measures. I have not been able to find anything yet; so that at this time I think that this is a provision which must be inserted in the act.


Donald Methuen Fleming: I wish the minister would
be more explicit. I do not think he has covered the whole ground by any means.


Douglas Charles Abbott: I have done the best I can.


Donald Methuen Fleming: On this point I have more confidence in the minister than he apparently has in himself. I think he can do better.
Speaking of loopholes, obviously the 1950 legislation left a great big loophole. I doubt greatly if the department foresaw the loophole there was in the 1950 legislation. The fact of the matter is that the minister derived a great deal of revenue from the fact that there was a great big loophole. If I am not mistaken, his revenue from this source, this new section 95A, was about $95 million in the last fiscal year. It contributed greatly to the surplus which the minister was able to report to the house in his budget speech. Much of the surplus is attributable to the fact that a loophole was left in last year's legislation.
I am sure that every lawyer in the house is aware of the loophole, Mr. Chairman, because the right was confined to private corporations, and they were defined as corporations having no more than 75 shareholders. A great many incorporations resulted for the purpose of consolidating stock

ownership, in order to bring the stock ownership within the definition of a private corporation. So let us not be too seriously talking now about a loophole. It was last year's loophole that was the big one, and the minister's budget was the beneficiary of that loophole.
The minister accepts the principle of last year's legislation. He says he approves it to the point where he is prepared to extend it more widely. He therefore proposes to eliminate altogether the requirement of last year's legislation that it be confined to corporations having no more than 75 shareholders. But then he comes along and proposes to take away the right from some corporations that already have it, having qualified last year as private corporations. He proposes to take that right away from them this year. Surely if the principle were sound last year, it is sound this year.


Douglas Charles Abbott: It is for the future, not for the past.


Donald Methuen Fleming: Oh, yes. I appreciate the fact that this provision is not retroactive. It does not have to answer for that additional vice. We will acquit it of that charge.


Douglas Charles Abbott: The matching provision does not apply to this type of corporation in the future.


Donald Methuen Fleming: All right. There is the point. I say that if the principle of last year's legislation was sound, and if it is so sound that it deserves quite wide extension as is proposed in this amendment, then I cannot for the life of me see that the minister has made out any case for carrying that extension to the point where he not only withdraws it from some corporations which would acquire it this year but also withdraws it from some that acquired it under last year's legislation. It seems to me that he has not taken account at all, in his explanation, of the position of the minority shareholders in those cases. It may be that the minister has some legitimate concern which he has not yet expressed to the committee as to the position of the majority or dominant shareholders in a case of that kind where one corporation holds the control of the other. But he has not dealt with the question of the position of the minority shareholders, and it may be an important one in that particular company. It seems to me that they are the people who are deserving of the utmost consideration in a case of this kind.


James MacKerras Macdonnell: Mr. Chairman, I am going to be persistent enough also to have another go at this matter. It seems

to me that what is happening is that by reason of the chance of abuse the minister is -ready to accept the certainty of doing a grave injustice to a considerable number of people of the kind that most deserve the protection of this committee, namely the smaller people in the main. I am not suggesting for a moment that the minister-


Douglas Charles Abbott: There is almost certainly abuse.


James MacKerras Macdonnell: I have considerable confidence in the minister's staff. The minister says there is almost certainly abuse. I will not quibble about words. I will say to him that there is an absolute certainty-no doubt whatever-that as it is now an injustice is being done to the minority shareholders. Will the minister say there is a hardship where I called it an injustice? Is the minister agreed that there is a hardship?


Douglas Charles Abbott: No. I do not think there is a hardship. Minority shareholders are always subject to certain disabilities and this may happen to be one of them.


James MacKerras Macdonnell: Oh, I do not
think that that answers the point.


Douglas Charles Abbott: My hon. friend knows just as well as I do what is going to happen; or if he does not, he is the only man in Canada who does not. This matching legislation was designed with the idea in mind that half of the profits of the corporation would be distributed and be subject to tax and the other half could be created as a tax-free surplus by paying 15 per cent. If the situation of a parent and subsidiary is involved what happens is this. Half is distributed in accordance with the provision of the act as it now stands. It goes to the parent but it does not pay any tax unless the parent should see fit to distribute that. It is only the remaining half of which some may happen to go to the minority shareholders

if there are minority shareholders. The remaining half pays tax at the rate of 15 per cent. So you could have a situation where the only tax that would be paid would be 15 per cent and the parent could accumulate and accumulate on that basis. That never was intended; and unless I can find some other way of making sure that it cannot be done, that provision cannot stay in this section. If, incidentally, some minority shareholders are inconvenienced, that is unfortunate. But certainly they are no worse off than they were before this section was put into this act.


James MacKerras Macdonnell: I do not think the minister has answered my point at all. I accept his rebuke if he wishes to give it. But
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it does not affect the point at all. It simply means that-I will not say because no effort has been made, for of course some effort has been made-because they have not yet finally found a satisfactory way of doing it, these people have to suffer.


Donald Methuen Fleming: If the minister's heart is not to be warmed on that point, I will try him on another one. This is a point that I think must be within the minister's knowledge as having arisen under last year's legislation. It is a point of some difficulty. When the minister brought in his legislation a year ago he intimated-in fact I think he said this on several occasions-that the way in which the corporation, having paid this 15 per cent tax on that undistributed surplus, could then effect distribution among the shareholders, was through such forms as stock bonus, issuance of preferred stock and so on. I do not think that due account could have been taken at the time of the effect of one provision of the Companies Act on this matter. I believe this problem has arisen in the experience of a number of companies. As I understand it, the idea back of section 95A was to eliminate a surplus as a surplus and to effect distribution. Of course there are many corporations which did not have preferred stock or did not have the right to issue preferred stock, which in the meantime have *acquired that right, have issued preferred stock, have made their election, paid their 15 per cent and wish to distribute by way of redemption, in whole or in part, of preferred stock where the preferred stock was issued in amounts equal to the amount of the surplus heretofore undistributed, now distributable by paying 15 per -cent tax. They run up against the provisions of section 61 of the Companies Act, in the case of dominion corporations. I am sorry to bring in a long section -in a technical discussion, Mr. Chairman, but I think I have to quote most of this rather long -section to the minister to illustrate the point, which is this: While the purpose of the legislation was to eliminate what had been undistributed surplus from the company's balance sheet as a surplus, as I understood it, nevertheless it seems to me that the effect of section 61 of the Companies Act, as applied to companies incorporated under that act or subject to it, is to prevent that surplus from being removed from the balance sheet of the company-


Douglas Charles Abbott: May I interrupt my hon.
friend to make a brief comment? The purpose of the section was to facilitate capitalization of an earned surplus. It was not necessarily or primarily intended to facilitate

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the distribution of the capitalized surplus if it had been capitalized. I know that in fact in law it has not been too difficult to effect that distribution, but the primary purpose was not to facilitate an easy distribution; it was to facilitate an easy capitalization without attracting too high a tax.


Donald Methuen Fleming: I think that some of us
formed a quite different impression from the statements that were made last year, and certainly when wide publicity was given to the new section 95A it was done on the basis of this provision now making it possible to effect distribution tax-free of-


Douglas Charles Abbott: I did not make the publicity
about it.


Donald Methuen Fleming: -what hitherto had not been distributable tax-free apart from the 15 per cent. I do not know whether the minister had this particular problem brought to his attention, but section 61 of the Companies Act in effect provides:
The redemption or purchase for cancellation of any fully paid preference shares, whether the same are created by by-law pursuant to the provisions of section 59, or by the letters patent or supplementary letters patent, in accordance with any right of redemption or purchase for cancellation reserved in favour of the company in the provisions attaching to such preferred shares, . . . shall not be deemed to be a reduction of the paid-up capital of the company, if such redemption or purchase for cancellation is made out of the proceeds of an issue of shares made for the purpose of such redemption or purchase for cancellation, or if-
Then I pass over (a) and (b) in the hope that the minister is familiar with them and I do not have to take the time of the committee to read them. Then follows this provision:
And subject as aforesaid any such shares may be redeemed or purchased for cancellation by the company on such terms and in such manner as is set forth in the provisions attaching to such shares, and the surplus resulting from such redemption or purchase for cancellation shall be designated as a capital surplus, which shall not be reduced or distributed by the company except as provided in sections forty-nine to fifty-eight, both inclusive, of this act.


Douglas Charles Abbott: Which relate to the reduction of capital.


Donald Methuen Fleming: Sections 49 to 58 relate to
the reduction of capital. I am not the only member of the legal profession who has had to deal with this problem. These sections do not make provision for the elimination of the surplus as a surplus from the balance sheet of the company. I think that is a matter of quite general concern at this stage when so many of the corporations which proceeded under section 95A last fall are now proceeding to redeem in whole or in part preferred stock that was issued at that

time as a means by which the distribution in the first instance was permitted after payment of the 15 per cent tax.


Douglas Charles Abbott: Well, it is some little time
since I have been able to earn a modest living by giving advice on these matters, but I did assume when we introduced this legislation last year that the capitalized surplus could only be withdrawn by way of a reduction of capital under sections 49 and following of the Companies Act. It was not then intended that it should be automatically paid out as dividends. The main underlying purpose of the legislation was to enable earnings which in fact had been reinvested in the business and were shown on the company's balance sheet as an unearned surplus of capital, and under the proper circumstances, to be withdrawn from the company.
From what I have seen and heard, while we may have given a little extra work to the members of parliament in the accounting and legal profession, I must say that it has not proved an insuperable difficulty to get out this capital surplus if it is desired to do so. Mind you, I think that in most cases where this surplus has been capitalized there has been no intention of withdrawing it from the company. I think that in a good many cases it has been necessary to leave it in there as working capital, or as a reinvestment in the business, but it was desirable, in order to eliminate the double punitive taxation features of succession duties and income taxes, to provide this way of dealing with that capitalized undistributed surplus.


Donald Methuen Fleming: It may be that what the minister has had to say today does clarify the situation, although it is not the interpretation that was widely put on the remarks the minister made last year in indicating the purpose of the section, because under what has become the common practice now, where preferred stock was issued following the election under 95A, and the companies now are proceeding to redeem that preferred stock in whole or in part, they cannot even by the fact of that redemption effect the reduction in surplus that I think it was generally felt they could.


Douglas Charles Abbott: That may be. I had always assumed that they would have to get supplementary letters patent to authorize a reduction in capital.


Donald Methuen Fleming: I would say myself that even if they have the full right to redeem the preferred stock, and proceed to do so, that still does not eliminate the surplus from their books. It remains as a capital surplus, and they would have to take another means

altogether to eliminate that capital surplus from the company's balance sheet.


[Stage Direction]
Section agreed to.
Sections 31 to 37 inclusive agreed to.
On section 38-Reference to Income Tax Act,-References to this act.
Donald Methuen Fleming: This section is so broad that it is a little hard to see the end from the beginning. Subsection 5 reads:
A reference in any other statute or in any rule, order or regulation made under any other statute to the Income War Tax Act shall, as regards any transaction, matter or thing in a period to which this act is applicable, be construed to be a reference to this act.
Then you have the like provision in the new subsection 6 which reads:
A reference in any other statute or in any rule, order or regulation made under any other statute to any provision in the Income War Tax Act shall, as regards any transaction, matter or thing in a period to which this act is applicable, be construed to be
(a)	if there is a provision in this act relating to the same subject-matter, a reference to that provision, and
(b)	in any other case, a reference to the provision in the Income War Tax Act referred to.
It is pretty hard to see all the cases to which a provision of this kind might be made to apply. It says: "any statute, any order or regulation". I do not know how many of these there are. It would take a pretty careful review to go through them to satisfy oneself that one had exhausted the list. This is a form of general legislation which should be approached with the greatest possible care.


Douglas Charles Abbott: My hon. friend appreciates that it is almost like an amendment to the Interpretation Act, the Succession Duty Act, the Income War Tax Act and there are probably a good many others. One way to do it would be to open all these acts and bring in a technical amendment to substitute the Income Tax Act for the Income War Tax Act. This seems to be the practical way of doing it. I am assured that there is no substantive effect other than the one which I have indicated.


Donald Methuen Fleming: Some of us may have a certain concern about applying the provision of a new act in place of an old one without actually seeing the particular provision that is supposed to be amended.


Douglas Charles Abbott: It can only affect matters which have arisen since June 30, 1948, when the present Income Tax Act came into force, and which superseded the previous act. Any matters which had arisen prior to that date would of course have to be governed by the provisions of the old act.
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[Stage Direction]
Section agreed to.
Sections 39 and 40 agreed to.
On section 7-Dividends received by a corporation.
James MacKerras Macdonnell: I should like to raise again the question I raised the other day and which the minister said he would consider, that is to say, whether the adoption of the winding-up priority as a sort of working rule would cover the cases where you have A and B shares with different priority as to earnings but with equal rating as to capital distribution.


Douglas Charles Abbott: I am told that this is a most complicated question. It relates, of course, to the blocked surplus. In order to effect what may be necessary it will require two definitions and they will have to integrate the blocked surplus with dividends. It has not been possible to work that out. I am informed that the Department of National Revenue are working on this problem and if, as was the case in connection with other amendments, a suitable solution is found we will make it applicable to the same taxation period.


[Stage Direction]
Section agreed to.
On section 12-Defence surtax.
James MacKerras Macdonnell: There is a question I should like to ask with regard to section 11. I appreciate that that section is carried, but the minister made a statement which puzzled me at the time and I have thought about it since. The minister stated that the introduction of the words "directly or indirectly" was a relieving provision.


Douglas Charles Abbott: I did not say that; I said that the section as a whole was a relieving provision.


James MacKerras Macdonnell: Perhaps I misunderstood the minister, but I do not think entirely. He was applying this to those words which are new words.


Douglas Charles Abbott: Subsection (b) is the relieving part of the section.


James MacKerras Macdonnell: I directed the minister's attention to the fact that certain people were suffering by reason of the change, and he answered that there were more people interested in the relieving nature of this provision. I find it difficult to understand the relieving nature. Is the minister not extending the number of corporations which can get benefits?


Douglas Charles Abbott: The best example under (b) is the brother and brother corporation. As the law now stands, if one brother has a corporation in which he has controlling interest and another brother has another corporation in

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which he has a controlling interest or of which he is the sole owner; and if neither of them has any interest in the other, as the definition now stands, because of the blood relationship between the two owners-I cited the case of brothers who might not even be speaking to -each other-it might be pretty difficult under those circumstances to determine which corporation would be entitled to the benefit of the lower rate on the first $10,000 when only one could get it. This subsection (b) will permit that type of corporation to qualify as a small corporation and have the benefit of the lower tax rate.


James MacKerras Macdonnell: Does it add to the number of corporations getting the benefit?


Douglas Charles Abbott: It will add considerably. In the example I cited, both corporations would get the exemption. The only part of the section which could be considered as imposing any greater obligation on the taxpayer is the insertion of the words "directly or indirectly" in (a). I think that that must flow as a matter of course. If the real owner of two corporations puts shares in the name of someone else purely as a nominee or as a dummy he should not get the benefit of the special tax treatment which a section of this kind gives. I think it is quite proper in any section of this kind to use the legal phrase "owned directly or indirectly."


Donald Methuen Fleming: I know that concern has been expressed by some-*


Douglas Charles Abbott: Is this on section 12?


Donald Methuen Fleming: No, on section 11.


Douglas Charles Abbott: We passed that section.


Donald Methuen Fleming: The other day the minister spoke about the retroactive feature and there are those who are engaged in litigation who have expressed concern.


Douglas Charles Abbott: As I indicated the other day, the simple thing to do would be to make it
1951.	I indicated that I would be prepared to do that. I know if I do it at my hon. friend's suggestion, or at the suggestion of the hon. member for Greenwood, they will get inquiries from people who are penalized as a result of that action. I have not the slightest objection to doing it, but I do not want to take the responsibility of doing it. I think the balance of convenience is wholly in favour of making the definition of related companies and thereby broadening the application to start right from the time we put that conception in the act, namely, in 1949 and the subsequent taxation years. The only retroactive effect it could have on the litigation my hon. friend is referring to would be through the use of the phrase "directly or indirectly." I do not know what the law
[Mr. Abbott t
is in Ontario, but in Quebec we have a pretty well defined rule that you cannot do indirectly what you are prohibited from doing directly. It is a question of fact whether a corporation is owned by one person or another.


James MacKerras Macdonnell: I should like to go back to the discussion we were having last Wednesday when this came up and when the minister explained to us what had happened since the making of the budget speech. I want to read to the minister what he said in his budget speech which to me appeared to be departed from in the budget resolutions. 1 am doing this because I think if the matter is left as it is now it will create a serious situation indeed and one which I hope we can persuade the minister to consider seriously. The minister is reported on page 1810 of Hansard as saying:
I am conscious of the fact, however, that this 20 per cent surcharge will weigh very heavily on those kinds of companies which for a variety of reasons, public control of rates or otherwise, are never able to earn more than a very modest rate on their capital. To such companies the next few years can offer little expectation of increased profits, yet many of them are engaged in activities which will require them to raise very large sums of additional capital for essential expansion.
I draw the minister's attention to that because my belief is that as matters stand that will be almost impossible of accomplishment. The minister continued:
If we are not to cripple their borrowing capacity we must not cripple their capacity to earn their normal profits after tax. For these reasons I propose that the 20 per cent defence surcharge shall not operate so as to reduce the net income after federal tax, but before any provincial income taxes, of any company to a point below a five per cent return on capital employed.
Then I should like to refer to last Wednesday when the minister said:
I found I simply could not evolve a definition which would be fair to all taxpayers. Therefore I am reluctantly forced to drop what I hoped might be a relieving provision.
I want to emphasize at the outset that what I am concentrating on is the minister's statement of April 10 when he spoke about utility corporations, particularly when he pointed out first of all the narrowness of their earnings which in a great many cases are fixed by regulating boards so that there is just, enough to carry on with, and second, when he pointed out that they were going to need great expansion and would have to be in a position where their borrowing power was not crippled. I might add here that I think the Minister of Defence Production has been at great pains to indicate the importance of public utilities and the necessity of their expansion.
It is with that in mind that I wish to make certain representations to the minister. I

want to emphasize again the position of utility companies if the matter stands as it is now. In most cases they are just getting enough earnings. They will have to apply for increased rates if the matter stands as it is. The increased rates which they will have to charge will just be added on to the cost of living and will be another addition to the inflationary pressure. First of all I want to ask the minister if he agrees so that we shall see whether we have a common basis. I want to ask the minister whether he agrees that if the matter stands as it is now there will of necessity be applications for increased rates. I also want to ask him if he agrees that corporations will be in the ironical position where they will really have to ask for $2 for every $1 that the minister is going to get because of the fact that they only get half of their earnings anyway. The tax is now up to 50 per cent. In other words, if a company has to raise money to pay the surcharge, if it has to apply for additional rates, it will have to get $2 for every $1. I should like to know whether the minister accepts that view because what I want to go on to say is to some extent based on that proposition.


Douglas Charles Abbott: Of course public utility companies are no different from any other company in theory so far as the imposition of corporation taxes is concerned. Those taxes must be passed on to the purchaser of the service or the goods of the corporation which pays the tax. In the case of public utility corporations they have to go to a board, some public body, to get an authorized rate increase. In the case of commercial corporations they have to add it on to the price, or squeeze their profits and dividends a bit, or both. However, in essence what people should always realize is that the corporation tax has to be paid by the people who buy the service of the corporation or who buy the products that it manufactures. That is the only way it can be paid. The corporation has not any money except what it obtains from the people to whom it sells its goods. If it does not at least sell for its costs and a reasonable return on its capital, then over a period of time I suppose the inevitable happens as it has in other places and it goes bankrupt. There is nothing new about that. Of course I agree with my hon. friend.


James MacKerras Macdonnell: I am grateful that the minister agrees with me although he took quite a long while to say yes.


Douglas Charles Abbott: Oh yes, but it requires a little explanation.
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James MacKerras Macdonnell: I want to remind the minister that I am basing myself on the often very sound authority of the minister himself.


Douglas Charles Abbott: No sounder.


James MacKerras Macdonnell: I want to-repeat what he said. At page 1810 of Hansard he said:
I am conscious of the fact, however, that this 20 per cent surcharge will weigh very heavily on those kinds of companies which for a variety of reasons, public control of rates or otherwise, are never able to earn more than a very modest rate . . .
That is the great and very important difference, just as he has pointed out, between those companies and companies which are not restricted in that way. As we all know, those companies which come before boards are usually allowed just enough to get by, and just as soon as they have extra charges then they are in trouble. I have already said that the present situation will be inflationary, to use that word that we are all getting so tired of. I want to remind you, Mr. Chairman, again of the importance of the utilities and of the absolute necessity of their being able to expand. Then I want to come to the point which the minister makes that it is not possible to find a definition to deal with the situation. That is the thing that I do not like to accept, and which I do not think we should accept, because I think it is far too serious for the whole economy of the country.
The minister says he has been unable to work out a definition of capital employed which would be satisfactory from the point of view of its general application to all companies. I am talking particularly, as I said, about utility companies, and that is what I want to emphasize. I do not believe it would be difficult to devise a definition to apply to public utilities which is the field most pressingly involved, and which by the nature of the budget address it was chiefly intended to cover. We have a very useful precedent in the United States because earlier this year the United States congress had to meet the same-problem.


Douglas Charles Abbott: That is under the excess profits tax act of the United States?


James MacKerras Macdonnell: Yes, I will come to that. I will make that clear. Congress stipulated that electrical, gas, telephone, transit and water utilities were exempt from the provisions of the excess profits -tax act, which the 20 per cent surcharge takes the place of in Canada, up to 6 per cent return on capital employed in the case of all but telephone and gas utilities where the allowed return was 7 per cent. I come to what I think.

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is the most important point of all. The definition of return on capital employed covered dividend requirements of common and preferred shares, interest on bonded indebtedness and surplus. The same sort of treatment would meet the requirements of the public utilities in Canada that the minister has been talking about, and it is no less essential for the war preparedness effort here than it is in the United States.
When this matter came up last Wednesday the minister spoke as if it might work into possibly a major reconstruction of our tax system next year, but what I want to represent to the minister is that the present situation is going to create a difficult if not impossible situation this year. I hope the minister will agree, and if he does not I think it is desirable that he should say so, that the utilities will have to raise millions of dollars of new capital this year as well as next, and anyone who has any knowledge of the capital markets appreciates that the monetary policy against inflation that the country has been following since April makes it more difficult than previously to raise new capital through bonds and preferred stocks. To apply a 20 per cent surcharge to utilities would so depress their earnings as to make it impossible for them to raise capital through the sale of common stock this year.
When I say "impossible" that is perhaps a strong word. I am speaking of the difficulties which it is reasonable to take into account, and I come back again and again to emphasize the minister's own words. I submit again that if the minister had confined himself to the objective which he laid down in April with regard to utilities the problem would have been a very different one, and that we might not have had the minister coming to us last Wednesday and confessing failure.
There is another point that I should make. Inevitably we are going to have a demand for increased rates which will bear hard on everybody, and even then the situation will not be wholly cured because the increased rates probably will not become effective in the immediate future. Therefore I put it to the minister that the present situation is one that he cannot possibly tolerate with equanimity, and that to merely say it cannot be done and leave it at that is to fail to deal with a problem which I think cries out for a solution. I suggest to the minister that our problem is the same as the problem they had in the United States, and that mutatis mutandis the solution which has worked there might very well work here.


Mr. Low:: I thought when the minister brought down his budget that this abatement of the 20 per cent surcharge was a wise
IMr. Macdonnell (Greenwood).]
provision, and I still think so. It is particularly wise, I think, when we begin to apply it to the group of corporations in the country known as utilities.


Douglas Charles Abbott: I thought my hon. friend wias asking me to increase the corporation tax.


Solon Earl Low: Not at all; not on this part. I have always had in mind this abatement provision and the 5 per cent. I think the minister knows that quite well. Certainly I agreed with him and with all those who took the position that in no case should we tax corporations to a point where they would net less than a fair percentage on the capital employed. I realize all too well how difficult it is to determine in formal language and for all corporations the meaning of capital employed, but a suggestion was just made by the hon. member for Greenwood which I think is wise and quite possible of application here. That is the definition as laid down in the United States under the excess profits tax, which provides that in the case of utilities there are three component parts to the capital employed, the share capital, the bonded indebtedness and the surplus. Certainly it should be possible to spell out in any amendment a specification of that kind applying particularly to utilities, so I would ask the minister to give very careful consideration to including for this year at least the provision of the abatement principle for utilities, if not for all corporations.
I should like to emphasize a little more one point made by the hon. member for Greenwood. If the abatement provision is withdrawn, as the minister suggests he is going to withdraw it, not only will it be necessary for many of the utilities to apply to the public service commissions for increases in rates. It will also be necessary for many of those corporations to wait for months before they can apply any such increase. As everyone knows it takes all the the way from three to six, seven or eight months to get permission from a provincial commission to apply a new rate, and in the meantime these utilities are going to suffer. They will be put in a very embarrassing position, and this at a time when the Minister of Defence Production is asking them to go all out to aid defence production. It does not seem to me that the two ministers are quite in accord. Certainly I would suggest that the Minister of Finance give careful consideration to the case that has been presented by the hon. member for Greenwood, and I support his request that for this year at any rate the abatement principle be applied to the utilities and that capital employed be defined as has been suggested, to include bonded indebtedness, surplus, and share capital.


Donald Methuen Fleming: Six weeks ago the house adopted a resolution to this effect:	that in
respect of income earned after the commencement of the 1951 calendar year a corporation shall pay a defence surtax equal to 20 per cent, subject to the provision that the tax should not reduce the corporation's taxable Income after payment of ordinary income tax to an amount less than 5 per cent of the capital employed. That was a decision of this house; the house adopted that resolution. I fail to see how it is possible for the minister to come forward now with a proposal that has the effect of tearing up the second half of that resolution.


Douglas Charles Abbott: It has been done plenty of times before. Occasionally my hon. friend or other hon. members suggest that I should be more generous in the budget, and sometimes I have acceded to that request. In that case the resolution would have been on a basis much less favourable. It works both ways.


Donald Methuen Fleming: That was a decision of this house, and for the life of me I do not see how the minister can now, during the same session and within a matter of weeks, invite the house to revoke and repudiate that decision.


Douglas Charles Abbott: Why not?


Donald Methuen Fleming: This is not just a case of
carrying a budget resolution into legislative form. In this case the bill has undertaken to do that, and the minister comes along and invites the house to reject a section in his bill and with it to repudiate a decision taken by this house a matter of six weeks ago. I submit that cannot be done.
Let us have regard to this fact. The hon. member for Greenwood read to the committee the language used by the minister in his budget speech at page 1810 of Hansard for April 10, where presumably he gave reasons justifying this abatement clause or limitation so that a corporation's taxable income after payment of ordinary income tax should not be less than 5 per cent of the capital employed. This raises a question of fundamental ambiguity in the budget speech in describing the purpose behind this budget resolution. In his budget speech the minister supported this proposal on the experience of public utility corporations.


Douglas Charles Abbott: Not exclusively.


Donald Methuen Fleming: There is the point. In his
budget speech the minister supported the proposal on that ground and did not mention any other.


Douglas Charles Abbott: Yes, I did. Read the language.
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Donald Methuen Fleming: I will read the paragraph.
The minister said:
I am conscious of the fact, however, that this 20 per cent surcharge will weigh very heavily on those kinds of companies which for a variety of reasons-


Douglas Charles Abbott: "A variety of reasons."


Donald Methuen Fleming: *-public control of rates or otherwise, are never able to earn more than a very modest rate on their capital.


Douglas Charles Abbott: Pretty general.


Donald Methuen Fleming: To such companies the next few years can offer little expectation of increased profits, yet many of them are engaged in activities which will require them to raise very large sums of additional capital for essential expansion. If we are not to cripple their borrowing capacity we must not cripple their capacity to earn their normal profits after tax. For these reasons I propose that the 20 per cent surcharge shall not operate so as to reduce the net income after federal tax, but before any provincial income taxes, of any company to a point below a 5 per cent return on capital employed.
The minister has now cleared up quite satisfactorily, I think, what was to most people who read that paragraph an ambiguity, because I believe most people in reading it thought the minister was supporting the proposed 5 per cent saving clause on the basis of the experience of public utility companies alone. Now he has indicated that this was an example-


Douglas Charles Abbott: They are an outstanding
example, but they were not by any means the only group in my mind.


Donald Methuen Fleming: All right; we have that
clear, that the minister did not have in mind public utility companies only.


Douglas Charles Abbott: The language was quite clear.


Donald Methuen Fleming: He had in mind in general
companies which will not be able to increase their earnings in the coming years. The minister gets his budget resolutions adopted; and now, having indicated to us that this is intended to apply broadly to all corporations, he invites us to accept the failure to define the capital employed and on that ground to tear up or repudiate a decision taken by this house six weeks ago.
When I first read the section I felt that the first point I should like to raise was the fact that in subsection 4 of the new section 37 of the act the minister was reserving the right to define the capital employed by regulation, rather than have it written into the act. For my part I wanted to see that definition written into the act, because it seemed to me something of sufficient importance to warrant its being so written into the act. If it were possible to define it

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by regulation, it ought to be possible to do it with equal facility by statute. But the minister invites the committee to accept his conclusion that it is not possible to prepare a definition of the expression "capital employed."


Douglas Charles Abbott: Not possible to satisfactorily define it.


Donald Methuen Fleming: All right, to define it satisfactorily. There is no quarrel on that; it is a matter of terms. I would be the first one to recognize the difficulty facing the minister in working out a satisfactory general definition to apply to all cases. But I do not think we can accept that as sufficient ground for repudiating a decision taken by the house, a decision that was an essential feature of the budget proposals of the minister. In justifying this second increase in the corporation tax within about nine months, the minister laid great stress on the fact that it was not going to prevent any corporation from earning a rate of five per cent on its employed capital. Unquestionably, there are difficulties. Anyone who had any experience with our Excess Profits Tax Act will not be unaware of the difficulties of defining capital employed.
But I submit we must go on with this problem, and find a satisfactory definition of capital employed. For the sake of bringing that about, I am prepared to curb my own objections in order to provide the minister and his advisers with sufficient time. I do urge that the problem should not be treated in the way the minister invites us in his amendment to do, simply admit defeat and cast out a saving provision which was an integral part of the general proposal for an increase in corporation taxes. The member for Greenwood and the member for Peace River have quite rightly stated that if you do not add such a saving provision as this in the case of public utilities, then inevitably those public utilities are going to have to go to the boards that set their rates and make applications for increases. One of the things that will happen will be another application by the railways of this country to the board of transport commissioners for another increase in freight rates. The same will be true of the Bell Telephone Company, and other public utilities that are subject to the jurisdiction of provincial boards in practically every province in this country. The public is going to be called upon to pay.
Surely, Mr. Chairman, we are not going to accept defeat in a matter so important. Surely, we are not going to perpetuate a situation now by means of which we are going to embark on a program of repudiating decisions of this house. We must now tell the public

utilities up and down this country that if they are going to maintain the rate of return on their employed capital-it is not a very large return at best-then they shall have to launch their applications now for an increase in rates. It is just as inflationary as it can be, and it is going to defeat many of the pleas that the Minister of Defence Production is making to these corporations to expand their output.
Let us recall what the Minister of Finance said in his budget speech, that the next few years could offer little expectation for increased profits, yet many of the companies are engaged in activities which require them to raise very large sums of additional capital for essential expansion. With the curbs there are on credit now, that additional capital for essential expansion is not going to be available to those companies. I urge the minister not to be content to accept defeat in his efforts to bring about a satisfactory definition of employed capital. The committee recognizes the difficulties. No one who knows anything about this problem will underestimate the difficulties with which we are faced, but surely we are not going to admit we cannot work out a definition, given the time and the opportunity of consultation with the advisers of the government and others. I would urge that in something so important, so integral a feature of the budget proposals of the minister, this committee should insist that the scheme of those proposals be proceeded with, and that a definition be worked out. This would enable the decision of the house to be implemented.


Douglas Charles Abbott: There is really nothing I can add to what I said the other night on the technical point raised by the hon. member. The government's budgetary proposals are always subject to revision until the acts implementing them are finally passed by the house. It is true that it is fairly rare for a minister of finance to suggest taking away something he hoped to be able to give to some taxpayers; that happens to be the case here. More often some additional concession is given, as is the case in the special tax exemption for the armed forces. No one regrets more than I do that it has not been possible to evolve' a satisfactory definition which would be fair to all taxpayers. As I said the other day, we have made extended efforts to do so and we have failed. So far as I am concerned I can only say to the house that for this coming year, for the reasons I have given, the twenty per cent surcharge will apply to all corporations who have profits during the year.


John Lambert Gibson: I would be interested in hearing the minister's reply to the suggestion

made by the hon. member for Greenwood concerning the taxation of public utilities. Would it not be generally better to put public utilities in a different taxation set-up from the ordinary company? Probably the minister will confirm this, but I have always felt that British Columbia suffered a greater disability, since most of the public utilities are privately owned, than the people of Ontario where they have the Ontario Hydro Electric Power Commission.


Douglas Charles Abbott: That, of course, is a situation which has existed for some time. It is true not only of the province of British Columbia but also of the province of Quebec, where we have large privately owned utilities. We now have some that are publicly owned. In the province of Ontario power interests are principally publicly owned, but that is not true of telephone companies. Power companies are perhaps entirely publicly owned, with the exception of some in northern Ontario. There is no doubt it would be desirable to try to evolve some tax plan which might be more equitable. As my hon. friend appreciates, there are considerable difficulties. Perhaps a fairer way might be to put the load directly on the consumers instead of collecting it through the corporation tax. As I said a few minutes ago, that is what the corporation tax does; it collects from the consumers the corporation tax imposed in this particular situation.
I am sorry now that I made this proposal at all. I hoped that it might be possible, during this period when we were putting on this twenty per cent surcharge, to evolve some definition which might give some measure of relief to certain companies. It has not been found possible to do it. No one regrets it more than I do. As I said a moment ago, I have to take the position that the twenty per cent surcharge on profits will apply this year to all corporations.


Solon Earl Low: Will the minister comment on the provisions of a United States bill which defines capital employed as share capital, service and bonded indebtedness.


Douglas Charles Abbott: This is a very complex question. That definition is contained in the Excess Profits Tax Act, and we have not such an act now. It is a little difficult to justify, in principle, as capital employed, borrowed money the interest on which can be deducted from the gross income for the purpose of arriving at taxable income. We have explored all these different formulae. We have tried to find one that would be fair to everybody. We have considered the American definition. I can only assert that the best brains I have available to advise me have not been able to get a proper one.
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So I am not prepared to recommend-and I am repeating myself time and time again-this type, and I therefore ask one of my colleagues to move an amendment that it be dropped.


James MacKerras Macdonnell: I do not
like to persist but I feel extremely unhappy about this matter, and I want to ask one or two more questions.


Douglas Charles Abbott: I find that the amendment
was moved.


James MacKerras Macdonnell: Does the minister think that I exaggerated the difficulties which may likely face public utility companies, and does he think I exaggerated the important part they may have to play as part of the defence effort? If I am wrong on all that, or if I am conjuring up a bogey, maybe I should not say anything more. But I should like to know whether the minister agrees with that. Because if he does, then it seems to me he is putting us-and, if I may say so, himself-in a rather extraordinary position by saying this thing cannot be done. He has done what is now required, before, in different situations. It is being done elsewhere in almost identical circumstances. I come back and repeat my question: Does the minister think I am exaggerating the difficulties which may face the public utility companies?


Douglas Charles Abbott: I do not know whether my
hon. friend is exaggerating them or not. These added taxes will of course impose a heavy added burden on the public utility companies. It will also impose added charges on a good many other companies. Public utility companies, because of the fact that they have to apply for an increase in rates, may find it more difficult than others. But the difficulty created by the added tax is not confined to public utility companies.


James MacKerras Macdonnell: No. But
the minister was the first to point out very clearly in his budget speech that their position is radically different.


Douglas Charles Abbott: No, it is not. I only used
public utility companies as an illustration of a wider group; and if my friend will read what I said-and he does not need to read it into Hansard again, because it has already been done two or three times-he will see what I said. Those words in my budget speech were carefully considered. I can assure my hon. friend that they were not words quickly written down, haphazardly. They were carefully considered. We deliberately brought in a reference to public utility companies as illustrative of corporations which were particularly affected by increased corporation tax. I am neither condemning

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nor justifying public utility companies. I should like to see them and some others get some relief from this 20 per cent surcharge, but I have not been able to find a way of doing it.


James MacKerras Macdonnell: I am not
trying to tie the minister to any interpretation of his speech on April 10 that he does not like. I am asking a question with regard to the difficulties. I want to say also that I appreciate the difficulty. I can well understand that the minister has been under a great deal of pressure and that is why he is so bored at listening to me this afternoon.


Douglas Charles Abbott: I have had all the representations that my hon. friend has had.


James MacKerras Macdonnell: We have
wound up here in a situation which is entirely different from that in which we have ever wound up before in my experience, by being told that there is something that cannot be done because we cannot define what we want to do. To me that seems to be extremely unsatisfactory, to put it mildly. The minister has admitted that what inevitably is going to happen is that the public utility companies, whose earnings are so streamlined that they just get by-


Douglas Charles Abbott: Some of them get by better
than others.


James MacKerras Macdonnell: The minister has admitted that what we are going to have is applications for increased rates in a good many cases and that the companies will have to ask for twice the amount because they get only half th^ returns themselves, fifty per cent or a little more, owing to taxation. Therefore we are going to have this additional burden in costs. Meanwhile we are going to leave the public utility companies in that position which I think would be unsatisfactory to the Minister of Defence Production. The Minister of Finance has not said that there is any impossibility in the formula which I read him and which I believe is the one used in the United States. He has not said it is impossible. He has said that he looked at it. But I am putting it forward again as something which, so far as I can see, is eminently possible in connection with public utility companies. I,t still hope that the minister is not going to bang the door. I think that the hon. member for Eglinton made a constructive suggestion when he said-I have no doubt unwillingly, but nevertheless he did say, seeing the difficulties and trying to get over them-to leave it to regulations. I would associate myself with him, although also unwillingly. In the light of that surely the

minister is not going to tell us that he is going to bang the door and is going to create the situation which may at the very least be embarrassing and at the worst be extremely serious, by leaving this situation as it is now for a year.


Some hon. Members:: Carried.


James MacKerras Macdonnell: No.


Douglas Charles Abbott: Mr. Chairman, I cannot add anything to what I have already said. I am afraid that I have repeated myself too much already. I have given this matter my best consideration. I have come to a conclusion. I have a certain responsibility here which I have to discharge, and I am endeavouring to discharge it. The amendment which I have asked my colleague to move, and which has been moved, represents my best judgment and I am not prepared to recommend any other action.


George Alexander Drew: Just before this motion carries, I should like to ask one question. I have not been here during the entire debate because of discussions which are taking place elsewhere. But the minister in effect is now saying:	I am withdrawing this proposal
because of the difficulty of definition. It has been pointed out to the minister that a similar definition was employed in a manner which the minister evidently felt he was able to interpret with sufficient accuracy on an earlier occasion. Before this is done and a further load in freight rates and a burden through other public utilities are imposed by this act, it seems to me that we should have a better understanding than apparently now is being offered as to why a definition that worked earlier will not work in this case.


Douglas Charles Abbott: My hon. friend was not in the chamber at the time, but I discussed the definition in the Excess Profits Tax Act which we had in effect during the war, and those who had practical experience in its application know that there was not one company in one hundred to whom that definition applied. Most of them had an attributed standard profit set by the board of referees. If we are going to have to set up a whole paraphernalia of an excess profits tax act with a board of referees, I pray that it may not be in the immediate future.


James MacKerras Macdonnell: I want
finally to express my regret that what we are going to do here is to create a situation where, as the minister has admitted, public utility companies will have to come and apply for increased rates and they will have to apply for twice what they need, in the sense that they will get only half of the amount because of

the taxation situation. That means that we are going to have an additional rise in the cost of living.


Louis-René Beaudoin: Shall the amendment carry?


Some hon. Members:: Carried.


Donald Methuen Fleming: No; put the question, Mr. Chairman.
Amendment agreed to: Yeas, 40; nays IS.


Louis-René Beaudoin: I declare the
amendment carried. Shall clause 12 as amended carry?
Section as amended agreed to.


George Alexander Drew: On division.


Louis-René Beaudoin: May I say that if a vote has been taken, and the members counted, it is considered as having been on division.
On section 15-Withholding.


Douglas Charles Abbott: May I say that my colleague the Minister of National Revenue would like to make a statement on withholding tax which was raised under this section.


James Joseph McCann: Some hon. members have expressed concern that the new tax deduction tables, which are to become effective as from July 1, 1951, provide for greater deductions than the 20 per cent defence surtax. Similar complaints have been received from outside quarters. First of all, let me state definitely that the tax itself is not increased by one cent more than my colleague the Minister of Finance announced in his budget address. However, the proportion of the tax that is collected in the least painful way, that is, at the source, from wages and salaries, has been increased.
Barely two months ago, many editorials and news stories called attention to and criticized the department because large balances of taxes were payable by wage earners last April. Generally speaking, these payments ranged from $15 to $25 per person, and in the aggregate they totalled about $40 million, to be paid largely out of the pockets of the working people at that time.
The feeling may have developed during the years after the war, when taxes were declining, that there was a strong tendency towards the creation of overpayments, although this tendency was not fostered by the basis of tax deduction. There seems to be little doubt that the wage earner prefers that his tax be paid as fully as possible by deductions at the source. The department subscribes to this view, but it was not deemed practicable to issue a new and slightly higher table of deductions until such time as a
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general adjustment of taxes was before parliament. There were two sound reasons for this. First, a change of this nature places a severe strain on the payroll operation of all employers-large or small-and it is desirable that the number of such changes should be kept to an absolute minimum. Secondly, the employee would in many cases interpret the change to be an increase in tax imposed by my department without sanction of parliament.
When the budget was brought down this year, necessitating the issuance of a new set of tables, the opportunity for revising the basis presented itself. It was realized, however, that circumstances were not wholly favourable because, for a majority of persons, the deduction per pay period would increase by more than 20 per cent. On the other hand, we were confronted with the fact that the year-end balances would automatically be 20 per cent higher in the future if we did not do something about it immediately.
A careful study was made of all the factors bearing on the problem and it was decided to recast the tax deduction tables in such a way that the least possible amount should be left to be paid at the end of the year, but that in the process no person should deliberately have an over-deduction made at the source. The steps taken to accomplish this were, first of all, to narrow the range of the income brackets within which a specified amount of tax deduction was to apply. When the income bracket is narrowed, the tax deduction becomes more precise. Secondly, the amount of tax specified for a given bracket was the full amount payable for the income which constituted the bottom of the bracket-that is the highest level. For an income which is in the middle of the bracket, the rate of deduction falls slightly short of 100 per cent of the tax payable; while at the top of the bracket, the deduction is still further short of the full tax. That is, we range it for an income that runs from $40 to $50 a week.
The average weekly wage across Canada in February, 1951, was $47.76, according to the dominion bureau of statistics. In the new tax deduction table, this wage falls within the weekly bracket $47.50 to $48.49. That is the dollar range. To illustrate my point, I will show below the effect of the new basis of tax deduction at 10 cents intervals of income within this bracket for a single person with no dependents. There will be shown the percentage deduction, the balance payable at the end of the year and the amount of charitable donations, over and above any investment income that might be earned, that would be required to convert the balance payable into a refund.

Income Tax Act
Single-No dependents
Annual
Tax
Weekly income	Payable
$47.50	 $275.88
47.60	 276.93
47.70	 277.99
47.80	 279.05
47.90	 280.11
48.00	 281.17
48.10	 282.23
48.20	  283.29
48.30	 284.35
48.40	  285.41
It is now necessary to deal with the question of charitable donations and their influence towards the creation of refunds under the new table. At the same time, the influence of investment income of wage earners must also be considered because these two factors terid to counteract each other. Any income which is additional to the wage income increases the balance payable at the end of the year because, generally, such income is not subject to tax deduction at source. Charitable donations or allowable medical expenses tend to reduce the balance payable. In the year 1949, the total investment income of wage earners and salaried people was $71J million. On the other hand, their charitable donations claimed totalled $53J million and the medical expenses totalled $23J million. Over the whole picture, therefore, the investment income exceeded the charitable donations and almost equalled the combined donations and medical expenses. However, the investment income of employees is undoubtedly concentrated into fewer hands than are the allowances and for this reason the figures may be used only as a general indication of the relative weight of these two opposing factors.
Turning to something more specific, a study of twenty thousand returns of employees, filed in our Toronto and Winnipeg district offices, showed that charitable donations were claimed as follows: Of the 20,000 taxpayers 69 per cent made no claim or claimed less than $5; 12 per cent claimed from $5 to $14; 5 per cent claimed from $15 to $24; 3 per cent claimed from $25 to $34; 2 per cent claimed from $35 to $44; and 9 per cent claimed $45 or more.
We come finally to the actual increase in tax deductions which arises purely from the revised basis and is over and above the 20 per cent increase resulting from the defence surtax. Across the whole field of wage earners, it is estimated that the increase might be about 5 or 6 per cent. In the case of those taxpayers who are earning a low income, the percentage increase might be

Tax deduction	Balance due	Donationsper table 7	following	requiredApril	to offsetAmount Per cent	balance$275.60	99-9	$0.28	$ 1.37275.60	99-5	1.33	6.52275.60	99-1	2.39	11.71275.60	98-8	3.45	16.91275.60	98-4	4.51	22.11275.60	98-0	5.57	27.30275.60	97-6	6.63	32.50275.60	97-3	7.69	37.70275.60	96-9	8.75	42.89275.60	96-6	9.81	48.08much higher.	As	an extreme	case, the
weekly deduction for a single person without dependents, earning $25 a week, will be increased from 55 cents to 95 cents, or by 40 cents, whereas the defence surtax would only result in an increase of 10 cents. But this same person, instead of having $20.20 to pay at the end of the year, will in future have only $4.60 to pay at the end of the year. Percentages are misleading in these cases because the amounts involved are small. However, if percentages are to be used, it is true that the tax deduction has increased by 73 per cent instead of by the expected 20 per cent. But on the. other hand, the year-end balance payable has been reduced by 77 per cent.
As stated at the outset, there has been no increase in the actual tax liability other than the authorized 20 per cent surtax. What has been altered is that the tax liability is spread more evenly throughout the year with a consequent lightening of the burden at the year end. In so far as the department is able to determine, this is the arrangement most suitable to the vast majority of wage earners. If the transition had occurred at a time of declining tax rates, I am sure there would have been no adverse comment. It is perhaps understandable that complaints have arisen when the effect of the change-over is added to the effect of the increased rates. However, had we neglected to make the change-over, the condition would be 20 per cent worse next April.
Finally, I should add that in those cases where the incidence of intermittent employment, charitable donations, or unusual medical expenses, brings about over-deductions of tax, refunds can and will be made within a very short time after the taxpayer files his annual return. This year, for example, all district offices had processed refunds within two to four weeks after the receipt of the returns. If the taxpayer will file his return promptly, the department will see to it that he gets his cheque with all possible dispatch.


Ellen Louks Fairclough: Mr. Chairman, the minister has just given us a very interesting statement. I have given this matter considerable attention since the minister made his previous announcement. While I realize that many people would like to have the tax deducted at the source, while I realize that for most of them this is a most convenient method, there still are those who have hospital and medical bills to pay or who habitually donate to charities. I ask the minister if he will not given consideration to making appropriate alterations in the TD-1A form on which employees indicate their deductions so that when people are faced with what they know are going to be prolonged medical expenses they may indicate the approximate amount of those expenses and not be asked to pay income tax on them at the time they are paid.
I think this could be done with a simple alteration to the form. In spite of statistics to the contrary, many people do contribute heavily to charities. It is not fair that they should have to pay income tax on what they contribute and then have to wait nearly a year before they get their money back. The minister has said that it is the intention of the department to make refunds in a short time, but we must realize that no taxpayer can complete his return much before March 1 because he must wait until February 28 before his employer completes his return on the wages or salary paid. A refund could not be received until April at the earliest, and I think most people would do pretty well to get their refunds by June. When I say six months I think I am being quite optimistic.
The money is in the hands of the government and it is the old story that when the government owes you money, you do not get interest, but when you owe the government money, you pay interest. I think this objectionable position could be corrected, by making alterations on this form.


James Joseph McCann: We will look into the matter raised by the hon. member for Hamilton West. It is just as hard for the taxpayer to anticipate what his medical expenses will be as it is to anticipate what his increased income may be.


Ellen Louks Fairclough: That may be, provided
you do not have a specific instance. If you know that someone in your family has gone to hospital, if you know how long he may be there and how much you must pay per week, plus the surgery bills, you can make an estimate of the money you will have to spend before the end of the year.


Donald Methuen Fleming: I think the statement made
by the Minister of National Revenue has
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been useful and I am glad he has given us such an extended statement. However, I think he has revealed a more stringent approach to the problem than some of us had supposed would be made. I am not going to criticize the department for breaking down the present categories with a view to narrowing them. That is a perfectly reasonable approach. But when we find deductions scheduled to take 99-9 per cent of the income tax in certain categories, it seems to me that that is going too far. That is the whole basis of my reaction to the statement.
The fact is that you are going to create a great deal more work in the department and add to the administrative tasks of those who review the applications for refunds. It is going to mean that far more people are going to be overpaid than has hitherto been the case. In the meantime they will have to forgo interest, and wait until the department makes a refund. I agree that the department is showing better results in connection with refunds, but there is no sense in trying to extend these deductions to the point where inevitably you are going to increase the number of overpayments and the consequent applications for refund.
The minister has mentioned that this is not an increased deduction of 20 per cent to take care of the surcharge. That is perfectly obvious. Instead they have provided for its being pushed up by 73 per cent. It seems to me quite obvious that the department is going too far in this matter. The department is simply creating inconvenience for many taxpayers and more work for itself. A more moderate approach to this question would have been infinitely desirable.


[Stage Direction]
Section agreed to.
On section 19-Refunds.
Louis-René Beaudoin: There was an amendment to section 20 moved the other day by the Minister of Agriculture. Does the committee wish me to read it again?


Douglas Charles Abbott: The amendment that was introduced the other day was with respect to section 20. The amendment which I am now proposing is with respect to section 19, which replaces section 52 of the act relating to refunds. The hon. member for Eglinton raised the point that in the new section as amended reference had been omitted with respect to refunds without application therefor. I was informed that there was no intention of changing the law, and the section has now been redrafted to make it quite clear that upon the mailing of the notice of assessment for the year the minister may refund

Income Tax Act
without application therefor where any overpayment has been made on account of tax. The amendment is to provide for the case where deductions have been made and no return filed. The taxpayer becomes entitled to a refund, and the section will now provide that if he wishes a refund he must file a return within two years in order to get that refund. I think that covers the point raised by the hon. member for Eglinton.


Alphonse Fournier: I move:
That subclause (1) of clause 19 of Bill 296 be amended by deleting subsection (1) of section 52 of The Income Tax Act set out therein and substituting the following therefor:
"52. (1) If the return of a taxpayer's income for a taxation year has been made within two years from the end of the year, the minister
(a)	may, upon mailing the notice of assessment for the year, refund, without application therefor, any overpayment made on account of the tax, and
(b)	Shall make such refund after mailing the notice of assessment if application therefor has been made in writing by the taxpayer within twelve months from the day on which the overpayment was made or the day on which the notice of assessment was sent."


Louis-René Beaudoin: Shall the amendment carry?


Donald Methuen Fleming: It is six o'clock. I should like to look it over. There is an amendment to another section standing, and I do not think we will lose any time.
At six o'clock the committee took recess.


[Stage Direction]
AFTER RECESS

The committee resumed at eight o'clock.
Donald Methuen Fleming: I think the amendment introduced just before the six o'clock adjournment makes a decided improvement in section 19 of the bill. I should like to ask one question in regard to the effect of the alternative provisions of clause (b) which reads: shall make such refund after mailing the notice of assessment if application therefor has been made in writing by the taxpayer within twelve months from the day on which the overpayment was made or the day on which the notice of assessment was sent.
I take it the department is going to interpret that as giving the taxpayer the benefit of both those dates, and that the twelve months will operate from the later of the two?


Douglas Charles Abbott: That is correct.


[Stage Direction]
Amendment agreed to.
Section as amended agreed to.
On section 20-Non-profit corporation.
Joseph-Alfred Dion: There is an amendment to this section.


[Stage Direction]
Amendment agreed to.
Section as amended agreed to.
Bill reported.


Hon. George Prudham (Minister of Mines and Technical Surveys) moved: the second reading of Bill No. 194, to amend the Emergency Gold Mining Assistance Act.


Agar Rodney Adamson: Is the minister going to make a statement?


George Prudham: Yes. At the resolution stage we had a very comprehensive and constructive debate. The speeches were on a high level, and many helpful suggestions were made. I had prepared a rather full statement for delivery at this second reading stage, but at the insistence of the opposition I was persuaded to put it on the record at that time. My colleague the Minister of Finance (Mr. Abbott) will make a statement covering the international monetary fund and free market aspects of the problem. With your permission, Mr. Speaker, and with the consent of hon. members I would ask that his statement follow immediately upon the conclusion of my remarks.
During the time that has elapsed since the first reading of this bill we have undertaken a very careful review of the whole situation, and as a result of our study the government is now prepared to propose in the committee stage an amendment that will broaden the application of cost aid and give further assistance to the gold mines. Hon. members will recall that on the introduction of Bill No. 194 to amend the Emergency Gold Mining Assistance Act, certain questions were raised in respect to possible decreased payments to British Columbia lode gold mines as a result of the revision of the formula to be applied this year, 1951. The recent change in the formula for 1951, as in the bill now before the house, allows for payments on more assistance ounces than the original formula; and, assuming a similar production in 1951 as in 1950, it is estimated that five mines in British Columbia namely Bralorne, Cariboo Gold Quartz, Island Mountain, Kelowna Exploration and Pioneer, will be paid in 1951 on 103,250 assistance ounces in comparison with 98,086 assistance ounces in 1950, an estimated increase of 4-2 per cent in the number of ounces. In the British Columbia submission received by a number of hon. members, Polaris Taku was included. It is

understood that this mine is being closed and the mill being taken over by other operators. It will thus receive payments for only a small production of 1951 previous to the cessation of operations. For this reason it is here omitted for comparative purposes of payments in 1950 and 1951.
Assuming that the production of the five British Columbia mines will be the same in 1951 as in 1950, applying the new formula as contained in this measure those five mines will receive $71,000 additional in cost-aid payments. The amendment we plan to propose in committee stage will give further cost aid to these mines. It is expected that the additional cost aid will compensate, if not fully at least to a large extent, for the reduction in the exchange premium. If the cost of production increases the amount of cost aid payments will likewise increase.
Hon. members will recall that when Bill No. 194 was introduced reference was made to the fact that smaller total payments were made to the mines in Canada in 1950 under the Emergency Gold Mining Assistance Act than in 1949. Payments in 1949 amounted to $12,500,000 on 3,614,000 ounces of gold production eligible for assistance. In 1950 the assistance is estimated at $9,200,000 on 3,874,523 assistance ounces. The explanation for the decrease in payments is due to the fact that the Canadian dollar was devalued in relation to the United States dollar and the $3.50 per assistance ounce was deducted from the assistance paid on all ounces eligible for assistance. In 1950 the exchange premium received by the gold mines amounted to about $11,500,000. Thus in that year the benefits received by the mines over and above the price of $35 an ounce was $20,700,000, including cost aid amounting to $9,200,000. In 1949 the exchange premium received by the gold mines amounted to $3,100,000. Thus in 1949 the benefits received by the mines over and above the price of $35 an ounce was $15,600,000, including cost aid of $12,500,000.
It should be remembered in making this comparison that gold production was increasing, so that production from lode and placer mines eligible for assistance was 236,000 ounces greater in 1950 than in 1949. It should be remembered also that during this period costf were rising and the formula under the Emergency Gold Mining Assistance Act is designed to give greater aid with higher costs. On the same production and same costs in 1951 as in 1950 it is expected that the amount of assistance that will be paid under the measure now before the house will be $10,500,000. If, as in 1950, a gold production of 3,850,000 ounces is eligible for assistance, the amount of premium at a discount 80709-2701
Gold Mining
of 6 per cent for the Canadian dollar in relation to the United States dollar will be about $8,085,000. Thus in addition to the $35 an ounce the gold mines are expected to receive from assistance and the dollar premium a total of $18,585,000 in 1951. Thus the amount that will be received by the gold mines under the conditions outlined above will be approximately $2,100,000 less in 1951 than in 1950, but will exceed the 1949 figures by approximately $2 million.
The amendment which we propose to introduce in committee is designed to increase cost-aid payments to the mines by further substantial amounts. Some hon. members drew the conclusion that because the number of mines receiving assistance decreased last year, there must have been a number of companies going out of existence. What was actually happening was something very different. Following the devaluation of the Canadian dollar on September 20, 1949, the gold mines received $38.50 per fine ounce of gold produced and sold to the Royal Canadian Mint. In the months of 1949 after devaluation the gold mines received not only the benefit from devaluation but also the full amount of cost-aid. By the amendments of December 10, 1949, the amount of cost-aid was reduced to the extent of $3.50 per ounce by changing the cost-aid formula rate from cost minus eighteen to cost minus twenty-five. This eliminated from emergency assistance benefits mines whose costs per ounce were between $18 and $25. What these mines lost by cost-aid was offset by the increased exchange premium. Although not an exactly technically correct description of the method adopted, this is the practical effect of what has been done.
Accordingly, when the hon. member for Eglinton stated that the total number of mines being assisted was dropping from 111 in 1948 to 95 in 1949 and to 75 in 1950, the adjustment I have just described accounts for the non-appearance of several mines on the list of those receiving emergency aid. But the explanation of the chief discrepancy in the totals given of mines being assisted is that the hon. member was quoting totals appearing in the 1950 annual report on the administration of the Emergency Gold Mining Assistance Act. These totals were incomplete because the necessary audits were delayed in the case of certain applications, especially in regard to placer mining companies in northern British Columbia and the Yukon.
Reference to the 1951 annual report shows that instead of a decrease in the number of mines assisted, the total in 1948 of 117 was increased to 121 in 1949. The total given for 1950, namely 83, is of course not a complete

Gold Mining
figure but there is no reason to suppose that the 1950 total will not be as high as that of 1949, less probably three or four mines. The aim of the Emergency Gold Mining Assistance Act that this bill amends was, as the name implies, to assist the gold mines during an emergency period, and it is generally admitted that the act has operated successfully to accomplish this purpose. It is believed that the revision now being presented will accomplish a similar purpose.


Douglas Charles Abbott: Gold Mining
Assistance Act is, I think, a clear indication of our concern for the industry's continuing welfare. There may be different views about the appropriate price of gold at any given time, but it seems clear that if the official price were subject to rapid fluctuations or if gold were to be treated as an ordinary commodity like any other metal, there is a grave danger that the long-term stable market for gold as a monetary standard might be impaired. I think that the gold-mining industry as well as the government must bear this in mind in considering the various alternative methods of dealing with the present problems facing the industry.


Agar Rodney Adamson: Gold Mining
their number would be legion. I feel certain that if all restrictions on the sale of gold were removed we would have no difficulty in selling all our production at a price at least $10 over the present statutory price, and probably a great deal higher at the present time.
Refuting the third item of this article, the costs of putting gold into marketable form are not excessive. They run to a maximum of about 30 cents an ounce. The mint charges for this service are from three to ten cents an ounce, and they are making a reasonable charge. They have a sliding scale depending upon the fineness of the gold. On top of this, the Department of Finance collects a handling charge of 20 cents an ounce. The costs of over $2 per ounce, which the South Africans are forced to pay, are caused entirely by the fantastic regulations of the international monetary fund.
The procedure is as follows: Refined gold is produced from South African ore in the refinery in that country. This bullion is then adulterated down to 22 carats by the addition of an alloy. The so-called commercial gold is then shipped to the purchaser who has to manufacture it into objects of art, which generally take the form of easily poured little golden statues, and which are shipped out of the country to non-members of the international monetary fund where it is then rerefined to produce bullion and coins. Naturally, therefore, the cost of first refining the gold, second adulterating it down to 22 carats, third casting it into objects of art and shipping these to non-member countries, and fourth re-refining them into bullion . is an expensive operation. The entire cost of this, which is somewhere in the nature of $2 an ounce, is directly due to the ridiculous regulations of the international monetary fund. How much more profitable this market would be if South Africa could obtain this extra $2 an ounce is obvious. I suggest, Mr. Speaker, that this regulation has been deliberately made in order to make the South African operation as unprofitable as possible.
The fourth point in rebuttal is the substantial sales actually being made in increasing volume by South Africa. These figures I have already quoted. Therefore, Mr. Speaker, on these figures the operation of this extremely restricted market has been most profitable to South Africa and, judging from the latest figures, there has been a profit of over $534,000 in the last quarter. In the last available quarterly statement it appears that this market will be very much more profitable to her in the year to come. With regard to the expense and the establishment of a free market, I am convinced that 
an exchange mechanism could be established for buying and selling bullion similar to the bullion markets which existed before the first war, and that an extraordinarily handsome profit could be made by the brokers if they charged a tenth of 1 per cent commission. Probably it could be done for a great deal less, and I am certain the mining industry would be prepared to establish such a market without cost to anyone.
As a matter of fact I have been told that that is so, and certainly the gold mines of Ontario and the mines generally would be prepared to establish a bullion market similar to the one established in London, and would operate it without cost whatsoever. The device would be the establishment of a non-profit corporation, which is a familiar financial device.
The plight of the gold mines is well known. It can, however, be stated in quite simple terms. The cost of producing a unit of gold has gone up 68 per cent since before the war, and is steadily increasing. The price received is actually less now than obtained in 1939. What other product, whether raw or manufactured, could be sold today at prewar prices without the producer going bankrupt? The gold mining industry, in simple terms, is going bankrupt.
Here are the facts. In 1940 the industry made a net profit of $55 million. These figures are from the Canada Year Book. In 1947 this had been cut to $6 million after taxes, and half of this came from investment income. In 1950, without investment income, the industry made no profit, and today it is operating at a loss. I should like to mention that for the first time in our history mineral production in Canada passed the billion mark, and actually was, according to the latest D.B.S. estimate, more than 1,041 million. Of this gold was the largest single item, amounting to approximately 16 per cent. The importance of this industry cannot be overestimated, and despite the fact that our production increased last year the facts are plain for anyone to see. You cannot run an industry unless you are making profits. Unfortunately all of us know many enterprises that have had a big turnover and yet have gone bankrupt.
The effect of the bill is that the people of Canada have to pay through this subsidy approximately $12 million this year in order that the government may sell Canadian gold to the United States treasury at a price below that obtainable in the world market, and by so doing make a present to the United States of not only the subsidy but also the difference between the price we could obtain

on the free market for all our gold production and the sum obtained at the statutory price of $35 an ounce imposed on us by the Bretton Woods agreement. In other words, the Canadian people are bonusing the American people by $5 to $10 an ounce on nearly 4 million ounces or, conservatively, $25 million to $30 million this year, assuming a mean differential of only $7.50 per ounce.
Another question enters here. Today we are mining the rich ores of the mines. If this chamber could be considered an ore body, we are merely taking out the rich ore in the centre strip between the two lines of desks, leaving the great mass to the walls of the chamber untouched. That is a scandalous destruction of natural resources, because once the rich ore has been taken from a mine the low grade ore can never be recovered. Were we able to mine the ore bodies to their full width I am certain that the 4 million ounces, more or less, that we presently produce could be increased by at least 50 per cent within a period of three or four years. Given a production of 6 million ounces or the figure of 7 million ounces which has been mentioned to me, at the free market price of approximately $50 an ounce we are losing from $350 million to $400 million a year. We are jeopardizing an industry capable of producing that amount of new wealth every year. We are jeopardizing an industry that in those circumstances would cost the Canadian taxpayers nothing, an industry that above all others would help us in our adverse international balance of payments. We are doing that because of our adherence to the theories of the international monetary fund.
Not only are we doing this but, because our gold industry is operating at far below its productive capacity if the free market price were obtainable, we are losing the opportunity of selling much more of the prime product of our international trade. Today our unfavourable balance of payments with the United States is probably running at the rate of something over $400 million a year, and we cannot afford to lose any market. The free market price for gold in coin form is between $50 and $55 an ounce in Paris this week. I use Paris as being the best known and most steadily quoted rates. The average for the past year in coin form has fluctuated only some $7 an ounce or in the range of $47 to $54 an ounce in terms of United States dollars. Here I emphasize that the dollars quoted are United States dollars. The value of gold as against paper standards on the free market in Paris places the United States dollar at a discount of between 40 and 50 per cent in terms of gold. That is approximately what it has been depreciated to in purchasing
Gold Mining
power. Bar gold and raw bullion are quoted somewhat lower because the form they are in is not so convenient or acceptable to buyers. In this connection, England recently minted Sovereigns and, I believe, gold thalers, a coin acceptable in the Near East. Italy has also minted gold coins, and probably many other countries have wisely done so. If a consumer wants goods in a certain form and will pay for them it seems to me only good marketing practice to let him have them. Actually one can expect that if a free market were established in Canada the difference between the price of gold in coin form and the price in bar form would decrease until it almost disappeared. For the sake of convenience the gold coin will probably always sell for slightly more per ounce than the gold bar. Naturally bullion fineness of 24 carats is essential in all sales. Bullion is bullion, not 22 carats industrial gold or tubes of 80 per cent placer gold dust. Bullion is what is wanted on a free gold market; nothing else should be recognized or sold.
The value of gold to the economy of Canada has been questioned by the Social Credit party. As this party is from Alberta and Alberta quite rightly has pinned its faith on the oil industry, I think it would be interesting to hear what the leaders of the oil industry think about the gold industry. Last September when the provincial ministers of mines met in Victoria they were addressed by Mr. Auxier, president of the natural gas and petroleum association, which is the spokesman for that industry. In discussing the magnificent future he stated:
By the end of 1952 it is hoped that the Canadian oil industry would save Canada in foreign exchange $130 million annually or nearly as much as Canada's great gold industry.
That is what the spokesman of this industry had to say about gold mining even in its present depressed state. Were the gold industry to be given its head there is no doubt that for many years to come it would be a greater contributor to Canada's foreign exchange than the oil industry. Yet because of a slavish adherence to the instrument of a discredited economic theory, we are kicking the gold industry out of the window. The question which must be asked now is, is our membership in the international monetary fund worth the gold industry? I agree with hon. members of the Social Credit party that they were alone in sensing the danger of this international agency. I regret that I supported it; but originally it was to be an agency for the stabilization and freeing of world currencies. Actually the operations have been the absolute reverse; instead of freeing currencies and stabilizing
80709-27U

Gold Mining
them, nowhere in the world do you find freely exchangeable moneys except where there is a gold standard; and as I have pointed out before, the operation of the international monetary fund if anything has driven gold underground.
In resolutely opposing a free market the international monetary fund is doing the one thing that is destroying a return to the gold standard and fastening upon the world controlled currencies, restricted currencies, blocked currencies and several types of currency for every nation. Nothing is so holding up the recovery of Europe as the international frustration caused by currency control. Nothing so militates against us in Canada as our inability to freely exchange our currency with the nationals of other countries in payment for goods or services without either their government or our government interfering in the transaction. I say in all seriousness there is no agency today outside the communist world which has such a great potential for evil as the international monetary fund, and I am convinced that unless and until we withdraw from membership in that hydra-headed monster, the brain child of the Keynesian theorists, neither we nor the rest of the world with whom we wish to trade will recover. This device has been the supreme instrument for placing international trade in a strait-jacket. Unfortunately it has now become the instrument of policy of the United States treasury, and as such is undoing a great deal of the good of the Marshall plan. Having been in Europe for three months this year I can testify that nowhere did I see free currency. Everywhere there are restrictions between countries: national bank . restrictions, currency restrictions, restrictions on export sales, restrictions on imports so that the recovery of Europe is being delayed. The efforts of the magnificent Marshall plan were being frustrated and jeopardized because there was no adequate, free currency in Europe. I believe in all seriousness that a freely interchangeable currency is an absolute necessity for world recovery.
In this regard, I should like to quote from a speech made by O. Glen Saxon, professor of economics at Yale University, speaking before the thirty-first annual convention of the national association of mutual savings banks on May 7 of this year. In discussing the evils of the present economic theorists in the United States government, he stated that they had: (1) Devalued the dollar forty-one per cent in terms of gold; (2) partially remonetized silver further to dilute the money supply; (3) operated on an unbalanced

budget for twelve years; (4) repudiated the gold clause in government bonds and outlawed the gold clause in both past and future contracts, private and governmental; (5) made all United States money irredeemable in gold, except at the discretion of the treasury, and subject to progressive partial and possible total repudiation through inflation; (6) established arbitrary and artificially high values for foreign currencies; and, lastly, drained away the gold reserves of foreign nations and forced them to managed currencies, and created a monopoly of gold in the United States.
Now, Mr. Speaker, it is this that is destroying world trade. Gold has been and always will be the lubricating medium on which the machinery of world trade operates. Until gold comes out of hoarding at Fort Knox and from private hoards throughout the world, it cannot fulfil this essential function. Therefore, it is imperative that we do everything to start gold flowing in the veins of international trade once more. Freeing it from all restrictions is the surest way to do this.


Herbert Wilfred Herridge: When the resolution preceding this bill was before the house, Mr. Speaker, the members of this group all refrained from speaking, in order to facilitate the passage of the resolution that afternoon. I just want to take a few minutes to place before the house the position of the members of this group with respect to this bill and this type of legislation. This is a very unusual bill because it is sponsored by a government that refuses to subsidize the necessities of life; it is supported by an official opposition that is opposed to subsidies in principle; it is supported by the Social Credit group whose main argument in support of their policies indicates their belief that gold is not the true measure of value or the necessary basis upon which to issue money or credit; it is supported by the members of this group as a purely temporary measure, as a pill you might say to relieve the pains of economic indigestion that are affecting the gold industry today. Now, all these groups are supporting this bill for various reasons. But, Mr. Speaker, the bill is opposed by the independent coalition member for Comox-Alberni (Mr. Gibson), who on February 12 expressed his disappointment at the introduction of this measure by the government.
I want to deal briefly with his remarks, because at that time he did advance a somewhat new economic theory. The member for Comox-Alberni has not issued a written manifesto or policy, but I believe he has indicated the general outline of his policy in the

remarks he has made in various debates, particularly in connection with this bill.


John Lambert Gibson: I did not have a Regina manifesto, anyway.


Herbert Wilfred Herridge: The member supported the C.C.F. policy by endorsing public ownership of pipe lines. He supports Progressive Conservative policy by being a strong supporter of free enterprise. I would judge from his remarks on the occasion of the introduction of this bill that he advocates a sort of super social credit, because he believes in issuing currency and credit and upon the unknown quantity of gold in the earth owned by somebody else. We shall hear more about that later, I believe. It is obvious that in his approach to this bill, and by his remarks on various other bills, the member has indicated he has an all-embracing, somewhat crystal gazing program.


John Lambert Gibson: Empirical is a better word.


Herbert Wilfred Herridge: It is obvious that in connection with this bill he supports the principle of free enterprise to the full, because he says to the gold mining industry "Root hog or die." He supports our C.C.F. principles by suggesting that credit should be based on natural wealth, and not on mined gold. He supports the Social Credit policy by his obvious advocacy of the suggestion that currency and credit should be issued debt free on a private mystery. Without doubt the hon. member's policy in connection with this bill is a strange amalgam of economic theories, which indicates he does have a different economic policy from anyone else. We have on the one hand, Mr. Speaker, the organized trade union movement so far as the gold mining industry is concerned; management so far as the gold mining industry is concerned; the federal government, the provincial governments, municipal governments: in fact we have all Canada supporting this bill for various reasons, at least as a temporary expedient to assist the gold mining industry of this country. On the other side we have the member for Comox-Alberni. Before proceeding with my arguments in connection with this bill, I must say that I admire his tiiting at the windmills of circumstance.


John Lambert Gibson: You are the windmill.


Herbert Wilfred Herridge: I salute him as the greatest Don Quixote who has been produced in Canadian public life since confederation.
I have listened to the various members supporting this bill for different reasons and from various points of view. I have listened to the chorus to gold sung by the member for Cochrane, and the member who just preceded me. I have listened to the policy advocated by the member for Comox-Alberni. I
Gold Mining
wish to make our position in connection with this bill quite clear. It appears to us that from the days when men worshipped the golden calf mankind has been inclined to be hypnotized by gold. I find that on page 1686 of Hansard for April 6, 1951, the member for Cochrane states:
I have an appeal to make at the present time, first of all to the national treasury, asking them to use all their influence to assist the gold mines, because the yardstick of gold must of necessity be maintained, . . .
We cannot agree in any sense with that position as advocated by the member for Cochrane. Therefore, Mr. Speaker, in a few words I want to define our point of view concerning what wealth and money is, and our attitude towards the gold standard.
In our opinion wealth is something that sustains life or contributes to the well-being of society. A piece of bread, a bin of coal, a lovely flower, all contribute to life. Gold in the vaults at Ottawa, a bank note or a silver coin do not do this until they are exchanged for something else that is real wealth. We cannot eat money, nor can we drink it. It ministers to life only when it is exchanged for something else. The commodities which do sustain life are real wealth, and these are produced for us by the primary producers, the tillers of the soil; those who go down to the sea in ships; the lumbermen; the miners; and those who in a secondary way further the process of production or give services that make these products available to mankind. Now, Mr. Speaker, that is our definition of real wealth as opposed to the conception that looks upon gold as real wealth, and the real basis upon which currency and credit should be issued in this country. We believe that money is the financial wheel of our civilization carrying the accumulated labour receipts from one person to another and from one corner of the earth to another, even from one generation to another. Remember that it is the commodities that are important, not the wheel that circulates them; for it is through the commodities that our means of livelihood comes. For an individual to hoard gold, as money, is no more sensible than it is for a man to hoard wheels, in our opinion. Money is but a wheel in the financial world, and no amount of gold in the nations' treasuries can bring prosperity unless it is used to move commodities.
Just a brief word with regard to the gold standard. To many in this house the gold standard is almost sacred. We have been told that we must not meddle with this bulwark else the whole fabric of civilization will come tumbling about our ears. Some leaders, with an almost benediction hush in

Gold Mining
their voices, have informed Canadians from time to time that the country's honour was at stake and that the present international financial arrangements must not be molested, regardless of the fact that Canada has long since announced that no citizen would be paid gold in return for its currency, but that it was to be kept for the manipulations of the international bankers. We all know, Mr. Speaker, that so far as our internal currency is concerned, it is not in any sense of the word based on gold.
I cannot emphasize too strongly the fact that we in this group believe that man's labour on the earth is the only source of wealth and that gold has nothing to do with it; that our currency and credit have real value and that, to work effectively, must be based on the production of those who produce in this country and not upon the production of gold as in the past. We admit that the Bretton Woods agreement is an attempt to bring some stability to this artificial measure of value in the world, to bring some order out of chaos. The agreement indicates that even international bankers realize the necessity for some measure of planning. I should like to bring that fact to the attention of some of my friends to the right who were rather critical of the members of this group when they emphasized the fact that if we are going to have some order in international affairs and in our domestic economic affairs it is necessary to do some planning. Even international bankers have found it necessary to do some planning in order to try to bring order out of chaos in the establishment of the international monetary fund.


Solon Earl Low: Planning for whom?


Herbert Wilfred Herridge: Those signatory to the agreement. A good many people are of the opinion that United States interests are receiving first consideration, because of the strength of that country, in the administration of this fund. I was greatly interested in the remarks made by the previous speaker when he said he had voted for the Bretton Woods agreement, but that the international monetary fund and the Bretton Woods agreement had not functioned quite as well as he had expected when he supported that measure. I am of opinion, Mr. Speaker, that the hon. member is not alone in Canada in that connection. While it was looked upon at the time as an attempt to bring some international economic order out of chaos, a good many people are beginning to think that American interests are dominating the policies of the international monetary fund. For instance, at the present time, as I think the

previous speaker mentioned, when he discussed the technical details of gold-and I have not the ability to do that because, as a matter of fact, I have never had any gold; I am advancing our general opinions and approach to this question.


George Matheson Murray: The Kootenay country has.


Herbert Wilfred Herridge: But not I personally. The district I have the honour to represent has mined gold extensively throughout the years, is mining gold at the present time, and has large reserves of gold ore in various mines that are not being operated.


George Matheson Murray: You are going against your own people.


Herbert Wilfred Herridge: The hon. member for Cariboo does not understand what I am talking about, Mr. Speaker. If the hon. member for Cariboo (Mr. Murray) will just exercise his patience and exercise his intellectual equipment to the ultimate of its capacity until I am finished, I am optimistic enough to believe that he will have at least an infinitesimal appreciation of the subject I am trying to elucidate.
As the hon. member said, we know that actually gold on the open market is worth $5 to $10 an ounce more than is being paid at the present time. I think there is no doubt about it that we are receiving less than our gold is worth, in real value. I know that the trade unions and the managements concerned say that Canada should not be restrained to $35 an ounce by the international monetary fund. I think the government should give serious copsideration to these representations.
In addition to that, we have the attitudes of governments towards the gold standard. I just want to give an illustration, for the benefit of my friend the hon. member for Cariboo. When governments come to think in terms of real value and real wealth, we find that they do not talk in terms of gold. Quite recently there was a hearing in the United States in connection with the application of the United States government for the building of a dam at Libby on the Kootenay river, which would flood a certain portion of the constituency of the hon. member for Kootenay East (Mr. Byrne). The matter was brought before the international joint commission, for the members to hear of the circumstances. What do I read? The government of British Columbia gave serious consideration as to what the form of payment should take in compensation for this damage to Canadian territory. To support my argument that governments know what

real value is-that it is not gold, not currency, not money-I will quote from the brief of the government of British Columbia when considering compensation in connection with the application to build that dam. It reads as follows:
Because of the difficulties inherent in the fluctuating value of the dollar and the varying exchange rate, the province submits that the final settlement shall be in terms of an amount of electrical energy delivered at the international border at specified points for use in the province of British Columbia.
It is evident that the province of British Columbia knows what real value is; industrial power delivered to British Columbia can only be of increasing value throughout the years, and they were not willing to accept $1 million, $2 million, or $3 million in compensation for this damage and for the use of this water.
Then again I find that the East Kootenay Power Company Limited make a similar representation. I quote from their representation as follows:
It is submitted that a loss of this magnitude requires compensation to a like degree, and in a form not subject to the vagaries of rates of exchange or purchasing power of currencies.
They believe in the delivery of electrical energy. Again they are indicating their belief in what is real wealth, namely electrical power, not fluctuating currencies, gold or things of that sort.
Then the British Columbia Electric Company Limited made their representation:
That the logical way to compensate British Columbia for the economic loss which it will suffer from the flooding of the Kootenay valley is to arrange for a block of power from the Libby project to be set aside for the government of British Columbia.
That indicates the attitude of governments and of large corporations when they are considering what is real wealth. They know that human energy, human skills and ability, industrial power and natural resources are the bases of all real wealth today; and they are asking for industrial power in compensation for damage done to Canadian territory. They did not ask for a gold brick or for payment in dollars. They know what is real value.
In passing, Mr. Speaker, may I say that I noticed the other day in the Nelson Daily News of May 16, a daily published in my constituency, a headline which reads: "Money market may curb B.C. plans. Cities, school boards face same difficulties. $40 million credit to be sought in east or United States by Anscomb, deputy". The article goes on to say:
Mr. Anscomb will leave for the east shortly with his deputy, J. V. Fisher, to attempt to borrow the funds required for British Columbia's planned capital works.
Gold, Mining
To go to New York to borrow that money which will be based on British Columbia natural resources, British Columbia labour and British Columbia industrial power is something that we in this group do not agree with. We in this group say it would be far better to take this gold, keep it in Canada if you want to issue your credit and currency on it and not go to New York to borrow money. Better still to issue loans to our provinces, to our municipalities and to our school boards, based on the natural resources, the industrial production and the labour power of the province. There is no necessity to go to the United States, because these people lend that money exactly on that security. We in this group cannot see why this government cannot use the machinery of government, the Bank of Canada, to finance sound capital investment by the provinces and by the dominion government itself.
We find that representations have been made to the government for gold mining assistance. Representations have been made through the labour organizations directly concerned with the gold mining industry. As I said before, the labour organizations advocate a free market for gold. I do ask the government to give serious consideration to these representations.
The government has had representations from the gold mining industry, from the Canadian Metal Mining Association, the British Columbia Mining Association and representatives of municipalities. I had the pleasure of being with the representatives of some northern Ontario and Quebec municipalities when they made representations to two or three members of the government. I was impressed indeed with the presentation made by a lady reeve, from one of the northern municipalities. She made a very capable and effective presentation of the case for these municipalities.
On top of that, the government of British Columbia has indicated its position. The legislature of British Columbia unanimously adopted a resolution urging continuation of assistance to the gold mining industry under present circumstances.
We in this group support this bill because we must give human, practical, and immediate consideration to the needs of 23,000 miners and to 125,000 Canadians who are directly affected at this time by the gold mining industry. Second, we support this bill because the present condition is caused by international and government action.
' Third, we believe the miners are entitled to fair wages and satisfactory housing, and that it is necessary to protect the life savings

Gold Mining
of many of those people in homes, small businesses and service in the communities surrounding the mines affected.
Fourth, we believe it is necessary to protect the large public investment, federal, provincial and municipal in the communities and areas surrounding the gold mining districts.
Fifth, under the present economic system we in Canada receive goods in exchange for gold sold to the United States. In our opinion, the world of the future will not use labour to take gold from one hole and place it in another in order to protect a gold standard. But in the meantime we must be realistic, for in return for our gold we get commodities and goods that we require.
I have read the report of the Gold Mining Assistance Act, and I have read several of the speeches made, and I may make an observation or two in committee. I noted in reading that report that several large companies operate very profitable enterprises; that is, several very large and very profitable enterprises are receiving assistance for the operation of a mine or two, the operation of a iron-profitable gold mine or two.
First, when considering assistance under this act, Mr. Speaker, the total operations of any corporation should receive consideration. If the company has diversified its operations so that it is carrying on large operations in several spheres, the very fact that it operates a relatively small gold mining operation at a loss should not be considered. I think the total position of the company concerned, shall I say, should be considered when dealing with a question of assistance to these companies.
I do not intend to say very much more, Mr. Speaker, but I may ask a few questions when the bill is in committee. We in this group are particularly concerned about the standard of wages received by the employees of the gold mining industry. To date gold miners have been paid lower wages than miners in other hard-rock mines. The owners have constantly maintained that they could not afford to pay higher wages.
The minister when speaking said that the assistance provided in the bill would enable the companies to make a legitimate profit. According to my understanding of the word "legitimate" it means a lawful or regular profit. In view of the word "legitimate" meaning a lawful or regular profit, and the large lawful profits being made by many companies today, the word could possibly mean that some of these companies would make a very large profit, because the word legitimate simply means a lawful or regular
[Mr. Herridge.l
profit. We maintain that when companies are receiving this assistance from the government the first claim on the production and the first claim on this assistance should be a satisfactory standard of wages in relationship to the mining industry as a whole, and proper working conditions. We urge that in granting these subsidies the government should insist as a first qualification for assistance that the miners in the industry receive the standard wages and the same working conditions as miners in other hard-rock mines.
In conclusion, I again state that we support this measure as a necessary temporary expedient because it involves the livelihood of 23,000 miners and the welfare of 120,000 Canadians, and because of the large public and private investments in mining, communities and the surrounding areas; but we do realize that this is no final solution. It is a purely temporary measure, that in effect indicates the inconsistencies and contradictions of our present economic system.


Mr. Victor Quelch (Acadia):: Mr. Speaker, we in this group in the past have supported legislation to subsidize the gold mines because so long as it is considered in the national interest to encourage the production of gold in this country we should I think be prepared to allow the producers to receive a fair price. Hon. members will recall that back in 1945 under the Bretton Woods agreement we fixed the price of gold at $35 an ounce. Since that time costs have steadily risen, and therefore it would seem only fair to allow a subsidy at this time.
However, I would draw the attention of hon. members to the fact that during the past three years some $30 million have been paid in subsidies to gold mines, and employees of the gold mines, I believe number somewhere in the neighbourhood of 23,000. Now, keeping that picture in mind, remember what happened in this house when it was proposed that $65 million should be paid for wheat delivered over a period of five years to
250,000	wheat farmers. Many of the people who are advocating that this subsidy should be paid spoke against that payment of $65 million being made to the wheat producers. Mind you, that was not a subsidy; that was merely a repayment of a loss suffered by the farmers as a result of government policies. I mention that fact because we should be a little more consistent in this house on the question of subsidies, and deal with them in a fairer manner.
However, in spite of that fact, I say we support this subsidy; but I would point out that as war or fear of war may expand the demand for goods in this country I think that the gold miners could probably be better

employed elsewhere because already I understand there is developing a shortage of miners, and also I understand that already there is looming a shortage of mining engineers. I say that because after all monetary gold does not provide any essential service. As a matter of fact, at all times when it has been urgent that the production of the country be increased as rapidly as possible we have been forced off the gold basis. We have found that we could not bring about a rapid increase in our production as long as we were on the gold basis. That is what happened in 1940 and we are still off the gold basis.
The hon. member for York West (Mr. Adamson) and other members of the Conservative party have referred to the part played by gold in balancing our trade with other nations. That is true, and it has been especially true so long as our trade followed what was called the triangular pattern. This pattern was referred to often by the former minister of finance, Mr. Ilsley, who pointed out that we had a large favourable balance of trade with the sterling areas and a large unfavourable balance of trade with the United States and therefore we would have to insist that countries in the sterling areas pay their deficits in either United States dollars or gold in order that we might make up our deficit with the United States.
I have often wondered why we should consider it the responsibility of nations in Europe to make up our unbalance of trade with the United States. Unfortunately, as a result of that policy, we have found nations in Europe curtailing their imports from this country in order to avoid having a deficit with us and being under the obligation to hand over United States dollars or gold in order to balance their payments.
It is a good thing for the country that today we have a Minister of Trade and Commerce who apparently realizes the true functions of trade. Last year the Minister of Trade and Commerce (Mr. Howe) pointed out that the only way to overcome the difficulties that were encountered in that triangular form of trade was to increase our sales to the United States and increase our purchases from the sterling area. As a result of that attitude we find today that we practically have a balanced trade with Europe instead of a large favourable balance of trade, and we are doing everything we can to balance our trade with the United States by increasing exports.
In order to make a maximum contribution toward supplying the needs of backward nations and for the purposes of building up defences, I think the members of the United Nations should do everything in their power
Gold Mining
to discourage the production of what might be termed useless goods. It will be recalled that that was the policy during world war II. When it became essential during world war II that we increase the production of munitions and food we curtailed the production of gold. When you realize the situation in the world today it is quite evident that there is a great need for expansion in the production of food to feed the starving people in many countries. After all, we cannot feed gold to those people. I should like to refer to the report of the director general of FAO for 1949-50 and I quote from page one as follows:
There is far too little food for the world's hungry mouths, and the yearly increase in production is not enough to keep pace with the increase in the number of human beings. A third of the world's people enjoy health, wealth and wellbeing to a comparatively high degree; the other two-thirds live on intimate terms with poverty, hunger, disease, illiteracy and premature death. Even where production is most highly developed, farmers are subject to the vagaries of markets to such an extent that they run heavy risks by planning ahead for abundance. These bitter contrasts break out in discontent and rebellion because -and this is the most significant development of our time-every day more people realize that such conditions are no longer necessary. Modern advances in science and technology make greatly increased well-being possible for all mankind, and there is no insurmountable barrier to that achievement.
When you have that sort of situation in the world where not enough food is being produced to meet the needs of the people I think it is rather futile to suggest that you can stabilize world currencies by putting them on a gold basis. If you put currencies on a gold basis and at the same time have a shortage of food, will that gold prevent inflationary pressure in the demand for goods? Certainly it will make no difference whether that currency is on a gold basis or not unless there are goods to satisfy the demand created by that money. Therefore, the only way to avoid inflation, the only way to stabilize the currencies of the world, is to increase production so as to make sure that there will be a sufficient amount of goods and services to satisfy the demand created by the money in circulation.
When the hon. member for Eglinton (Mr. Fleming) spoke on the resolution stage he supported a free market for gold and gave South Africa as an example of the benefits that accrue to nations when they are able to sell some of their gold on that market. There are a number of reasons why I would oppose a free market for gold under the existing set-up, that is so long as our currency is valued in terms of gold under the international monetary fund.

Gold Mining
The first question I would ask is: Would the gold mine operators actually be better off if they were able to sell their gold in a free market than they would selling it under the Emergency Gold Mining Assistance Act? I listened with interest to what the Minister of Finance (Mr. Abbott) said. He stated that in his opinion the gold mine operators probably would not be any better off by selling their gold on a free market than they would under this act. I was interested in that because those views correspond closely with the views expressed by the Financial Post and the Financial News. I do not think anyone will suggest that either the Financial Post or the Financial News is opposed to the production of gold. I should like to quote from a statement which anpeared in the Financial Post of April 14, 1951, under the heading, "Free gold market not so profitable. Cost-aid returns seen just as great." This article by Gordon M. Grant reads:
Statisticians see several factors indicating the current $42 an ounce free market price for gold might prove illusory when it came to realizing the extra benefit on the entire Canadian output.
1.	The free market has not "steadily risen." It collapsed early in February, 1950-South Africa had to discontinue sales then-and only recovered the latter part of last year.
2.	Efforts to liquidate entire Canadian gold production at $42 an ounce could easily break the market, inspire increased selling by South Africa.
3.	Costs of putting gold into marketable form, and selling it, might run $3.20 an ounce or more- about half the "extra" gold mines might hope to secure. South Africa is reported to find it unprofitable to sell gold below $38.20 United States on the free market.
And again:
Early experience of South Africa gold mines with premium sales on the free market shows that returns were much less than the extra amount Canadian gold mines received under the Emergency Gold Mining Assistance Act.
And further down:
In recent months, it appears pretty definite that South Africa has been able to sell 40 per cent of her output on the free market-and perhaps at the $42 United States price per ounce. But averaged over her entire output, the extra revenue is only providing a gold yield of about $37.80 United States per ounce. From this figure must be deducted the expenses of fabrication and selling on the free market. These expenses are important because marketing costs on sale of gold to the Canadian mint are relatively negligible. Even with sale of 40 per cent of their output on the free market South African gold mines are probably no better off than Canadian gold mines under the set-up for 1951.
I shall not take the time to quote from the Financial News, but the article in that publication was exactly the same as the argument put forward by the Financial Post. There is another point I should like to raise. Under

the international monetary fund gold is used as the yardstick and currencies are valued in terms of gold. That being the case, would it be wise to make gold subject to the vagaries of international gamblers and financiers? It seems to me that you can hardly expect to stabilize currency by using gold as a standard of value if it is subject to wild fluctuations in such markets as Hong Kong, Bombay and other hot spots of the world. On the other hand, I would have absolutely no objection to a free market for gold provided first of all that it was divorced entirely from our monetary system. On that basis I would be prepared to support a free market, but would those people who are today asking for a free market be willing to accept it on that basis? I would say they would be most bitterly opposed to a free market for gold if gold was divorced from the monetary system. They realize that a part of the prestige that gold has today is the fact that it is used as a yardstick for our currency. Furthermore they want to have that prestige for gold apparently without accepting the responsibility that goes with it, the responsibility of stabilizing the price of gold.
Under the international monetary fund, which has been referred to during this debate, gold is the only commodity which nations can use as of right to liquidate their external trade deficits. That being the case, would it be wise to allow the price of gold to be dominated by such spots as Hong Kong, Bombay or any other spot in the world today where there is fear and uncertainty? In such places we find people trying to change their worldly assets into the form of gold so that they can pack it up and take it out of the country. One wonders how long a market of that kind could last. Moreover, where would they get the currency with which to buy our gold, and would the currency thus obtained be of any use for the purpose of balancing our trade with the United States, which is the main purpose of gold today in so far as Canada is concerned?
When the hon. member for Cochrane (Mr. Bradette) spoke he mentioned that I did not oppose section 8 of article IV of the international monetary fund. Section 8 reads:
The gold value of the fund's assets shall be maintained notwithstanding changes in the par or foreign exchange value of the currency of any member.
It is true that when the bill concerning the monetary fund was before the standing committee on banking and commerce I did not oppose that section for the obvious reason that I had bitterly opposed sections 1 to 6. Once sections 1 to 6 had been carried it was

obvious that section 8 was required to carry out the purpose of sections 1 to 6. Section 1 reads:
The par value of the currency of each member shall be expressed in terms of gold as a common denominator or in terms of the United States dollar of the weight and fineness in effect on July 1, 1944.
In other words, we opposed gold being used as a yardstick for the currencies of the world. We opposed the idea of all currencies of all member nations being valued in terms of gold. Furthermore, we opposed a subsequent section which made it impossible for a nation to change the value of its currency to a greater degree than 10 per cent without the permission of the fund. Sections 1 to 6 carried; and, once they had been carried, obviously section 8 was necessary to implement those sections. But I would point out that article IV was not the main article that we opposed in the Bretton Woods agreement. The chief reason we opposed the Bretton Woods agreement was that gold is the only commodity a creditor nation is obliged to accept in payment of debts owing to it.
In other words, we criticized the monetary fund because it gave the creditor nations the right to demand payment in gold for their balances held abroad, instead of placing upon them the obligation to accept payment in the only commodity with which most nations could pay, goods and services. I should like to refer to what I said at that time because the hon. member for Cochrane seemed to be a little bit confused and seemed to think that we were supporting gold as the basis. At page 131 of the minutes of proceedings and evidence of the standing committee on banking and commerce of December 13, 1945, I had this to say with respect to Bill No. 238:
It is interesting to note under this agreement that gold will be the only commodity in the world that a creditor nation is obliged to accept in payment of its debt. I realize it is not done directly. It is done via the fund. That makes no difference, and the witness agreed with me, no substantial difference. What is bound to be the result of that situation? It is all very well to call it a breathing spell, but they will not be able to breathe very long under a proposal of that kind, because when you realize the size of nations' unbalances of trade and the fact that they can only borrow up to 25 per cent of their quota in any one year they will not even be able to obtain enough currency from the fund to pay off the unbalance of trade. So it will not in reality prove a breathing spell. The situation that will face a debtor nation will be this. They will either have to cut down their standard of living to the very minimum, cut off imports, which will be contrary to the purpose of the fund, because the purpose is supposed to be to expand trade, and if a nation as a result of this is forced to cut down imports and reduce its standard of living to the minimum it would be directly contrary to the purpose of the fund. Instead of the fund helping to bring about an expansion of trade
Gold Mining
it will be helping to develop economic nationalism, the very thing it is supposed to prevent. I do charge that under this act that is exactly what will happen . . .
Is that not exactly what happened with regard to Europe? They found that they suffered from unfavourable balances of trade with the dollar countries and therefore they placed restrictions upon imports of goods from the dollar area. They cut down their standard of living to the minimum and adopted a very strong form of economic nationalism within the sterling area. I am not going to try to take any credit for the fact that we foresaw what was bound to happen at that time because it was so obvious that under the international monetary fund that was bound to be the consequence of such. a policy. At that time we advocated an alternative, and again I should like to refer to page 131 where I said:
What we want in the act mainly is a provision that a debtor nation in order to pay for its imports shall be recognized as paying for them when they establish a credit within their country in favour of a creditor nation and that that credit can be used to buy anything purchased within that country. Then if the creditor nation is not willing to accept goods from a nation with which it has a credit if it desires to trade on a multilateral basis it may trade the credit established on that basis for the credit of another country on a multilateral basis. So I say if the great industrialized nations are really sincere in this matter they should have shown it at this time and been willing to have an article to that effect put in the Bretton Woods agreement.
When we insisted time and again that an article of that kind should be put in the Bretton Woods agreement to ensure that the debtor nations would be in a position to pay off their debts by shipment of goods we were told that was a question of trade agreements, that it did not come within the confines of the international monetary fund, that it would be taken care of later on by some form of international trade organization. What happened when the international trade organization was set up? We found that it still further aggravated the situation because it introduced the policy that is often referred to as a policy of non-discrimination.
We in, this group are therefore opposed to the currency of this nation or, if we had the power, the currencies of any nation, being valued in terms of gold because the real value of a nation's currency depends upon the amount of goods and services that that currency will buy, and no amount of gold will change that. If you do not have the goods and services within the country, then no matter how much gold you have unless you can exchange it for goods that currency will become worthless because there will not be any goods for it to buy. If you had an island

Gold Mining
in the middle of the ocean with stocks of gold and no goods, the currency of that island would be absolutely useless. The only thing that makes a currency of value, as I say, is the goods and services that can be bought with it.
We have heard members of the Conservative party, particularly the hon. member for York West, advocating a return to the gold standard. Thank goodness the people of Canada will never tolerate the restoration of the automatic features of the gold standard, because we are not prepared to permit our people to be disciplined in that way. What does that mean? It would mean that any time our standard of living got a little higher than that of other nations and the prices of goods in this country rose above the prices in other nations so they were not buying our goods freely, gold would flow from this country to other nations and as a result currency would be withdrawn from circulation, unemployment would increase, production would go down and goods would pile up. After a while, of course, the presumption is that the process would be reversed; the prices of goods would fall, gold would come flowing back and the situation would be restored. The people of this country are not prepared to see men unemployed while at the same time we have great resources to be developed, resources which if developed can satisfy the needs of all the people of this country.
However, as I have already said, as long as we are members of the international monetary fund and therefore encouraging the production of gold, I believe legislation such as this is justified temporarily. We in this group do believe, however, that at the very earliest opportunity the articles of the international monetary fund should be thoroughly overhauled and gold displaced as the yardstick, and that the currencies of the world should be supported by a goods basis instead. I remember a westerner once coming to Ottawa and advocating that our currency be tied to wheat instead of gold. To those who feel we must have our currency tied to one commodity instead of to a price level I say it would be far more reasonable and logical to have wheat as the basis for our currency than gold, because wheat is of great use in the world. It would mean that if our currency were tied to wheat, any nation in the world obtaining our currency would know it could be exchanged for wheat, which is so urgently needed in every part of the world today. Starving nations would be glad to get our wheat, whereas gold is of little use to them unless they can turn around and exchange it immediately 
for goods. So if we have to tie our currency to one commodity I say wheat would be far more sensible, because we always have plenty of wheat and any time our currency got into the hands of another nation they could redeem it in this country for wheat.
As I listened to the hon. member for York West I could not help thinking how many forms of bugs we have in the human race. We have the gold bugs, who want to develop gold. We have the jitterbugs who want to develop the jitters. We have the firebugs, who want to develop fires; and we have other people who are just plain bugs. If you think too much about gold you may develop that attitude.


Donald Methuen Fleming: Mr. Speaker, this bill was given first reading in this house on April 6, two and a half months ago. Many of us hoped that in the interval the government would evolve some new policy or some amendment which would really meet the situation. While a slight amendment has been indicated by the minister, we must view the situation as one for which the government has failed to propose an adequate remedy. While of course the bill will be approved, since it is a good deal better than nothing, nevertheless it seems to me to be open to four fundamental criticisms. In the first place, it is inadequate in the provision it makes for the gold industry. In the second place, it is only temporary, just a makeshift and stopgap. In the third place, by its very nature it is necessarily discriminatory. In the fourth place, it is only an artificial remedy. The amendment simply represents more tinkering with that artificial, inadequate remedy. In brief, I think we must have either a free market or a realistic and adequate price for gold.
Some of the statements offered in the house this evening concerning gold have been a little surprising. In some of the speeches, if I may say so, there has been a want of appreciation of the part gold has played in the history of the world, in the history of trade and the history of currencies. Gold has always been the universally accepted medium of exchange throughout human history. Today no one can estimate the importance of gold to our economy or the economy of the world without due recognition of that fact. It is not simply a matter of the gold standard, though that has a bearing. It is a question of recognizing the part gold has had to play and still has to play in providing a means by which nations of the world may trade with one another and find something all will agree upon as a medium for settling their commodity

trading balances. All the world over gold has that peculiar and unique value and position. Today all countries, even Russia, seek gold, while the Kremlin is putting obstacles in the way of trade among the nations of the world.
Canada has a peculiar interest in this subject as a producer. When I hear hon. members belittling the place of gold in the world's economy I think they fail utterly to recognize the importance of gold production in our history, in the Canadian economy and in its good health.
At this late hour I am not going to indulge in quotations as to the importance of gold. When I spoke on April 6 I quoted what I thought were authoritative statements by persons such as Dr. Camsell, who have had a long connection and intimate experience with this subject. Gold played an invaluable part in preserving the economy of this country during the depression days. As much as any other industry in this country the gold industry pulled us through the worst of that depression experience.
Gold Mining
It would be well also to bear in mind that in Canada the ownership of gold mines is very widely distributed. It is not a case of concentrating wealth in the hands of the few. Gold shares, representing ownership of this industry, are widely distributed.
Gold has had a unique position and use in the history of this country also in providing the means of settling our commodity trading deficit with the United States. There has always been a market in that country for our gold production. During the years when our trading deficit with the United States was very high we were glad indeed to turn to our gold production as a means of meeting that deficit on commodity trading account. I have some figures, and to save time I should like to put them on the record if the house will permit me. They are taken from the government publication Foreign Trade, volume 9, page 993, of June 2, 1951.


Mr. Speaker:: Is it agreed that the hon.
member may place the figures on Hansard?


Some hon. Members:: Agreed.


Donald Methuen Fleming: The figures are as follows:
Canadian Trade with the United States (Excluding Gold)
Average
Name	1935-39	1938	1946	1947	1948	1949	1950	1951
								3 mos.
			(Millions of	Dollars)				
Imports from U.S. ...	418-7	424-7	1,405-3	1,974-7	1,804-8	1,951-9	2,130-5	678-1Exports to U.S	321-3	270-5	887-9	1,034-2	1,501-0	1,503-5	2,021-0	529-6Trade Deficit 	. 87-0	146-0	496-7	918-01	283-6	427-8	80-0	139-5
From "Foreign Trade" Vol. IX, page M3, June 2,1951
Those figures take us to the end of the third month of 1951. The record for the fourth month of this year shows a deficit of $93 million on our trading account with the United States. This has been a continuous feature of our history.
The dominion bureau of statistics daily bulletin of April 24 notes that on our current account with all nations in 1950 we had an excess of all types of imports over all types of exports of $316 million. It comments that these adverse trends were only slightly offset by a rise from $139 million to $163 million in gold available for export. This recalls to the minds of all who study this problem that gold is one commodity to which we have always been able to turn to help meet this chronic deficit of our commodity trading account with the United States.
Now, the gold mining industry has sustained great areas of this country, particularly in the two old provinces of Ontario and Quebec, but not confined to those provinces. It has been an important factor in the economic life of Manitoba and British Columbia. The needs of this industry today, and the way in which it has become a plaything of national and international policy, are reflected in the way in which some of these great mining camps, which were marked not long ago by flourishing and growing cities, are today presenting a picture of shrinkage and steady decay. No Canadian who has any appreciation of the sound elements of the economy of this country can sit back and contemplate with any degree of indifference or satisfaction the way in which the communities directly owing their economic life to the great mining camps of this country are suffering. We must open our eyes to this threatening situation, and the manner in which those areas have been

Gold Mining
suffering. If this industry is permitted to decay, no longer are these communities going to be great markets for the products of other industries. What is to become of the savings of the workmen in those areas represented by their investments in their homes? These are not vague possibilities. These are real dangers that are confronting these mining areas today, and the people who owe their livelihood to the health of this industry.
The Minister of Mines and Technical Surveys (Mr. Prudham) on April 6 quite properly paid a tribute to the part played by gold in sustaining the search for and the production of base metals. With the critical shortage of some of these base metals today as the world scrambles for commodities essential for rearmament, we must not overlook or minimize the importance of gold as supporting the search for these base metals.
Now, sir, a crisis is rapidly developing in our gold mining industry in Canada. When I spoke on April 6 I made some reference to comments made by the Prime Minister (Mr. St. Laurent) when he spoke in Timmins prior to the last general election. I believe the best recent summary of the situation I have found appeared in the last issue of the Monetary Times, in an article written by Mr. E. C. Gould, the financial editor. He sums up the situation in two or three paragraphs which read as follows:
The truth of the matter is that at many Canadian gold mines, a greater part of the ore mined since 1946 has been taken from underground workings, completed and financed in prior years. Owing to an increase in costs and the resultant reduction in the volume of profitable ore, the development of a ton of new ore is now three to four times the 1939 cost. Based on the current price for gold, this situation makes it uneconomical for many mines to open up new levels and they are gradually depleting the ore developed in prior years with a shutdown in prospect unless early and substantial relief is forthcoming. As a result, the gold mining areas are becoming depressed and the former rich relation of the mining world can no longer meet the high cost of existence from the returns of a fixed income. So far have we departed from the "age of gold" that now "the lowly hen, must be laughing at the goose that laid the golden egg."
The plight of the gold industry was described by Prime Minister St. Laurent as early as June, 1949, in a way that left little hope for profitable speculation. "Many gold mines in Canada," he said, "now are just staggering along because they are being squeezed between the fixed price of gold, $35 per ounce, and the high cost of production per ounce of gold recovered . . . The grim shadow of mine shutdowns has been hanging over many gold mining properties."
That is a quotation from the speech which the Prime Minister made at Timmins during the election campaign in 1949. The article continues:
Since June, 1949, this gloomy picture has certainly not improved for costs have increased $3.75

per ounce and the rate of gold assistance has been reduced.
According to figures, based on profits published in the Bank of Canada statistical summary, the average total earnings per year, for the years 1946 to 1949, for 38 gold mines were less than 30 per cent of the average for the years 1938 to 1940. A comparable figure for 643 Canadian companies, representing all industries, is 180 per cent for the same periods. The ratio of gold mining profits, therefore, is one-sixth of the average of all Canadian industries when compared with the average for 1938 to 1940.
The following is a picture of the current situation in the Canadian gold mining industry, outlined by the president of one of Canada's more successful gold mines in an appeal for what he terms the "adjusting of gold to a sound price basis": "The number of gold mines in Canada is being steadily reduced as mines are forced to close down due to rapidly rising costs while the price received for gold is below the 1939 level. The increase in average operating costs since 1939 is equal to over $15 per ounce or 75 per cent. Since 1946, when the price of gold was reduced to $35 in Canada, costs have increased by about $9 per ounce, made up of increases in wages of about 50 per cent equal to $6 per ounce and in supply costs of over 50 per cent equal to $3 per ounce. The cost of developing a new mine, building a plant and bringing the mine into production on a basis of 500 tons per day has increased from approximately one million dollars in 1939 to a minimum of two million, five hundred thousand dollars in 1951, while the estimated profit per ton of ore is now only a small fraction of the 1939 figure."
This is a matter of concern to all Canadians.
The fundamental problem of the gold mining industry today is not lack of markets, it is the price. This problem is the result of price control. Here is one commodity that has been singled out above all others for the application of price control. That has been in effect now ever since-


Douglas Charles Abbott: For seventy-five or eighty
years.


Donald Methuen Fleming: But on a very different basis now, if you please; that is the very point of this objection. I think that is the fundamental fallacy of the government's approach to it. Gold has been singled out for price control under an international agreement to which this country is a signatory, and so far as we have been permitted to know the government has been content to accept that ceiling on a product which Canada produces in large quantities. When Canada submits to a ceiling price, Canada necessarily absorbs a loss. Again, it is not all Canada that is absorbing this loss. The government has not approached this problem the way they approached the problems created by price ceilings in some other important Canadian products. Here the government has been content, apart from the altogether inadequate assistance provided by the Emergency Gold Mining Assistance Act, to see the gold mining

industry absorb these losses that are imposed upon it by a measure of price control on an international basis which the government of this country has supported. The result has been discrimination practised upon this industry, and a retarding of the growth of this industry; setbacks to this industry from which it will take a long time, and much more prosperous conditions, if it is ever to recover.
The Minister of Mines and Technical Surveys (Mr. Prudham) took some satisfaction out of the fact that last year there was a slight increase in national production of gold over the year 1949. If he looks at the figures for the first three months of this year he will see that we are now showing a slight decrease in monthly production. I may attempt this prophecy also, Mr. Speaker: if the present measure, even with the indicated amendment, is all that this government has to offer to the gold-mining industry, we are going to see a continuation in the trend evidenced in the production figures for the first three months of this year. That is something that is fraught with serious dangers for the economy of Canada.
I must take issue with the Minister of Mines and Technical Surveys with regard to some of the inferences which he has drawn from the report on the administration of the Emergency Gold Mining Assistance Act for the fiscal year ended March 31, 1951. In the year 1948,	117 gold-mining companies
received benefits under this act; in 1949 the number was 121; but in 1950 the number has dropped to 83, which is just two-thirds of the number in the previous year. What may we expect for 1951? Unless something is done to give help and hope to this gold-mining industry I may confidently venture the prediction that fewer gold-mining companies are going to receive assistance from this act.
Let us just look at the figures. In 1948 the government paid out through this act $10,500,000. I shall just give the round figures. In 1949 they paid out $12,500,000. But in 1950 the amount dropped to just a trifle over $7 million. This year the amount estimated was $9,200,000; the amendment contemplates another $900,000, or $10 million in round figures, an amount substantially below the figures of 1948 and 1949. In other words, while the needs of the industry have grown apace as costs have been soaring, the government contributes less in order to try to repair the damage the government policy has done to that industry deliberately, by following a policy of lopsided and discriminatory price control.
I spoke of rising costs. I think a study would repay hon. members of this house in
Gold Mining
order to see how costs have been rising in the gold-mining industry, and to see just how much more it costs today to produce an ounce of gold than it did five, ten or fifteen years ago. If I bad the time to do so, or were not concerned about wearying the house with statistics, I should like to put some figures on Hansard in that respect. I will just shortly give you a sample in passing, Mr. Speaker, of the kind of competition that the goldmining industry is up against. There are many miners engaged in the gold-mining industry who today are working at rates substantially below those prevailing in some of the other mining industries. How do you expect the gold-mining industry to compete for miners with some of the other industries like nickel, for instance, for which there is an ever-expanding market at an uncontrolled price? Here is a dispatch from Port Colborne, dated May 22, which reads as follows:
New agreement reached by the International Nickel Co. of Canada Ltd., and the International Union of Mine, Mill and Smelter Workers will mean wage increases of from 23 to 26 cents per hour plus a 40-hour week. The agreement affects 14,500 workers here and in Sudbury.
Then further down:
New wage rates will run from $1.53 to $1.88 per hour, except for partially incapacitated employees, who will receive $1.46.
The gold-mining industry cannot compete with wage rates like those as long as it is left to languish under this price control system imposed upon it by the government. Consequently men are driven away from the gold-mining industry into these other mining industries. But think of the hardship that imposes upon these people, in giving up their residence in areas where they have lived their lives, made their livelihood and invested their life savings in homes. They are now called upon to leave those areas, sell their homes at a sacrifice, and go to other areas in order to find work in mines which produce metals other than gold.
We in this house, Mr. Speaker, if I may say so, often fail adequately to realize the simple fact that an extremely narrow margin in costs or in price makes a world of difference with regard to turning what may be marketable ore into useless rock, or vice versa.
Proceeding as quickly as I can, Mr. Speaker, I come to the question of our national interests. As to the gold-mining industry, Canada's interest is all on the side of the producer; because our interests as consumers of gold are trifling as compared with the interests of Canada as a producer of gold. When we look at the government policy of discriminatory price control practised on this commodity, in which Canada's interest is altogether on the side of production, we must

Gold Mining
wonder, Mr. Speaker, that this commodity is chosen to be sacrificed on the altar of high government policy.
I would not be disposed to take a narrow view of this subject if, on international balance, Canada were receiving some quid pro quo in return for the sacrifice it is making of its interests as a gold producer, and provided that some attempt were made, as between our government and the gold producers of this country, to lift the burden of the sacrifice off the shoulders of that one industry. But where do we find some quid pro quo in this scale or in this international balance? The Minister of Finance (Mr. Abbott) can point to the need of international co-operation. Here is, on Canada's part, an exceedingly costly contribution to international co-operation. I think that the Canadian gold producer is entitled to ask for something in return for this contribution that is being exacted of him toward international co-operation or better international relations. Why should he be singled out, and why should his interests be sacrificed on this altar of international relations? We have heard nothing from the government to justify the singling out of the gold-mining industry for that unhappy role.
Looking back to 1945 when we entered the Bretton Woods agreement, I would point out that we then had a quite different world situation before us than this one we face now. One has only to look back at the preamble to the Bretton Woods agreement which in the light of the unhappy world conditions of 1951, reads today almost like a fairy story. Yet the gold-mining industry of this country, by government policy, tied to this international agreement, is made to suffer because the world has not been able to translate into actuality that pretty picture that we drew in 1945.
Let me now mention one or two facts of recent history. The international monetary fund, in its policy, has been largely under the domination of the United States, from the outset. The interest of the United States in the matter of gold is, on balance, fundamentally strongly on the side of the consumer. The United States has been over the years a vast net importer of gold. It is difficult to see how there can be a harmonization of the interests of Canada and the interests of the United States in a fund of that kind; it certainly cannot take place as long as United States interests as a gold-consuming country or a gold-importing country are to dominate the international monetary fund's policy.
Recently we have seen some indication of an attempt on the part of the international

monetary fund to influence policy in regard to the revaluation of the currencies of Europe. I have a press dispatch from Geneva, dated May 27:
The United Nations Economic Commission for Europe urged today an immediate and drastic revaluation of European currencies to turn the mounting tide of inflation.
But the international monetary fund within a week showed that they were opposed to it. This is a dispatch from London that appeared in a Canadian newspaper of June 4. I read a few sentences:
Considerable stimulus has been given to the controversy over the possibility or desirability of the revaluation of sterling by the recent declarations of the Economic Commission for Europe and the International Monetary Fund. Interest is added to their views by the fact that they are strongly opposed to each other.
The international monetary fund has expressed the opinion that no upward revaluation of sterling should be undertaken or contemplated until there has been a general relaxation of restrictions on international payments. The Economic Commission for Europe declares boldly in favour of revaluation, arguing that revision of exchange rates is one of the most effective means of fighting inflation.
But, sir, so far as we can see the policy of the international monetary fund is going to prevail.
In recent months, in fact over the past year, the United States has been obliged to export gold, largely owing to the increasing health of Britain's international trade, and Britain has been importing gold over the past year. The international financial news survey, a publication of the international monetary fund of May 11, says this in its opening paragraph:
Net gold sales by the United States to other countries amounted to $898 million in the first quarter of 1951, which corresponds to an annual rate of $3,590 million. This was a rise of about one-sixth above the already high fourth quarter of 1950.
The annual report of our own Canadian foreign exchange control board for the year 1950 reminds us on page 17 of this fact:
In order to meet the demand by Canadians substantial amounts of sterling were obtained by Canada from the United Kingdom in exchange for gold.
Gold has been going to the United Kingdom on account of Canada's trading relationships with her, too. Then, sir, in the Federal Reserve Bulletin of March, 1951, at page 257 in an article entitled: "The international movement of gold and dollars in 1950", one reads this paragraph:
Improvement in the gold and dollar positions abroad was widespread in 1950, as shown in the accompanying table and chart. Only a few countries, including Belgium, Norway, and Venezuela, failed to add to their holdings. Almost two-thirds of the over-all increase was concentrated in the

United Kingdom and Canada. These two countries, however, distributed their gains differently. The United Kingdom converted practically all its current dollar receipts (1-0 billion dollars) into gold, in addition to obtaining another estimated half billion dollars in gold from other sources. On the other hand, Canada's gold reserves increased by only $100 million in this period, while its dollar balances rose by over $500 million and were largely invested in United States government securities.
Continental countries participating in the European recovery program purchased about $380 million in gold from the United States during 1950 (of which about $200 million was included in monetary reserves) and added about 400 million to their dollar balances.
Now sir, in the face of that fact I submit to you that Canada has not been paying sufficient attention to gold, not even to her own gold supply, because if we look at the government publication, "The Canadian Balance of International Payments, 1950", at page 6 we will see some very startling figures. If I may put these figures on Hansard without reading them it would save time of the house.


Mr. Speaker:: Has the hon. gentleman permission to put them on Hansard?


Some hon. Members:: Agreed.


Donald Methuen Fleming: The table follows:
Canada's official holdings of gold and United States dollars1
(In millions of United States dollars)
			United States	
Gold	dollarsI 2	TotalDecember 31,	1944 ....	
293-9	608-3	902-2December 31,	1945 	... 353-9	1,154-1	1,508-0December 31,	1946 	
536-0	708-9	1,244-9December 31,	1947 ....	
286-6	215-1	501-7December 31,	1948 	
401-3	596-5	997-8December 31,	1949 	,... 486-4	630-7	1,117-1December 31,	1950 	, ... 580-2	1,161-5	1,741-7
'Exclusive of working balances and gold held against postal savings bank deposits, but including private balances of 98 in 1939 and 2 in 1940
"Includes United States exchange and short-term securities of the United States government.
I invite attention to the fact that during the year 1950 our gold holdings increased by only $100 million, while our holdings of United States dollars increased by over $500 million. Now, Mr. Speaker, we are not paying enough attention in this country, at least government policy is not paying enough attention, to the signs of the times and the way that the gold is being taken up by other countries, all these countries of Europe to which reference has been made; and we are laying up a store of United States dollars when under present conditions we might far better be laying up a more ample supply of gold in which to invest our reserves.
Has the international monetary fund played fairly with Canada as a great gold producer?
Gold Mining
The international monetary fund for over a year has been turning a blind eye to the fact that South Africa, the world's greatest gold producer, has been marketing 40 per cent of its monthly production in what the minister called today a premium market; in other words, markets outside the monetary fund- and there are lots of such markets. For let us bear in mind, Mr. Speaker, that many countries of the world which are important traders in gold are not members of the international monetary fund, and pay no attention whatsoever to the restrictions imposed by the international monetary fund upon its members. And there are, of course, great free gold markets today in the world. We find some of them in Europe and some of them further east, which pay no attention to the restrictions imposed by the international monetary fund, not even in some countries which are members of the international monetary fund. For instance, France has a very important market for the trading of gold that pays no attention to the restrictions imposed by the international monetary fund.
South Africa gold mines have been selling in the free or "premium" market 4-8 million ounces of gold in a year; in other words, 20 per cent more than Canada's total gold production. South Africa has been selling that quantity in what the Minister of Finance called the "premium" market. Canada faced with that situation, I submit, Mr. Speaker, just cannot sit back and watch her interests being dissipated while South Africa enjoys that very substantial advantage-and substantial advantage it is, sir.
If you will look at our own government publication called Foreign Trade for May, 1951, at page 839 you will find an article entitled "Gold-mining industry essential to economy of South Africa" written by the Canadian government trade commissioner to that country. In that article you will find this paragraph:
As in the case of other gold producing countries. South Africa is keenly interested in the prospect of a higher official price for gold, in fact she is the chief promoter of such an increase. A growing percentage of her production, in the form of processed and semi-processed metal, is being sold on the free market. This percentage today is put at over 40. The price in the opening days of 1951 reached $44.50 per ounce in Europe and about $35 in the Far East.
Then, further down:
Sales of other minerals by South Africa last year broke all records, according to statistics recently published by the Mines Department.
There you see South Africa pursuing her interest in this matter and enjoying a substantial advantage because of the fact that she markets 40 per cent of her monthly gold

Gold Mining
production outside the restrictions imposed by the international monetary fund.
Now, sir, what was Canada's position? What was the position that the Canadian cjelegate to the international monetary fund took when this question of freeing the shackles on South Africa came before that fund for consideration and when the fund decided apparently to permit South Africa to take this large percentage of its gold production outside the confines of the international monetary fund? I would like to hear the Minister of Finance tell the house just what was the position taken by the Canadian delegation on that question at the meeting of the governors of the fund. Did Canada acquiesce? Was Canada silent? Did Canada put forward any plea for similar treatment on her own behalf? Well, if she did not, Mr. Speaker, I say that this government failed to discharge an important duty that it owed to the gold mining industry, a very leading foundation for Canada's whole economy.
Sir, my time is passing quickly. I wish to conclude by indicating what I think are the courses of action open to Canada in a realistic appreciation of this situation, and due appreciation of where Canada's interest lies. The first course would be through the international monetary fund. That will necessitate effective demand on the part of the Canadian government for revision of the policy of that fund, and a demand for treatment similar to that received by South Africa. If the United States resists in order to avoid what it might consider to be domestic inflationary pressures, then I think we must have regard for Canadian interests and no longer submit this important gold industry to the sacrifices that it has been called upon to make.
The governors of the fund meet next September, and unless out of that September meeting comes a drastic revision of the policy of the fund as it affects the marketing of Canadian gold and the price for Canadian gold, this parliament will have to face up to the necessity of giving serious consideration to withdrawing from the fund. I would not wish to see a withdrawal from the fund without one last supreme effort being made to bring about in the interests of Canada a drastic revision in the policy of the fund. Therefore I say that this September meeting must represent Canada's offer of a last opportunity to the fund. If the fund is not prepared to proceed with due regard for Canada's interest, then Canada will have to face a serious alternative.
Of course, that alternative is to fall back on the free market, which means selling gold

in any form in Canada or elsewhere. There are a number of free markets in certain areas in the world today. A big free market exists in Portugal, there is a market in the east and so on. Of course United States policy with reference to the purchase of gold can have an important effect upon the future of the free market. That is why I should like to see something done, if possible, through the agency of the international monetary fund in the way I have indicated. If they will not proceed to revise their policy in the light of Canadian interests then I think we will just have to accept the situation and sell our gold in the available markets.
Here is evidence of a recent sale by La Luz mine in Nicaragua at $41.50 per ounce in the free market for all gold produced in the six months ended March 31, 1951.
I must bring these remarks to a close, but in doing so I wish to support a program offered by the Northern Miner in its issue of May 3, which reads:
Our proposition is: Give the citizens and corporations of Canada the right and opportunity
to buy gold
to hold or sell gold
to export gold
in suitable form, of certified fineness, at open market prices, openly arrived at.
Harking back to their December issue, they urge the government to:
1.	Instruct the Department of Finance to remove all discouragement to the purchase, holding, or sale of refined gold by Canadians.
2.	Instruct the Royal Canadian Mint to sell refined gold, in suitable and certified form, and at current open market prices, to Canadians for safekeeping.
3.	Endeavour at the international monetary fund, and through other channels, to persuade the fund and other nations to recognize the traditional usefulness of gold as a medium in which people of all countries can hold some of their individual savings in a form to protect themselves against inflation and currency depreciation, and
4.	Endeavour to persuade the fund and other nations to recognize this private market for gold as worthy of consideration in establishing or revising the price of gold rather than, as at present, imposing harsh controls, even in wealthy North American countries, in order to contain this demand and maintain the market at the monetary price set by the United States dollar parity established in 1934.
Also it was recommended:
1.	That Canadian gold mines be allowed at least as much liberty in exporting gold to non-monetary markets as South Africa, the largest gold producer and member of the fund, has provided to her producers, or
2.	If the Canadian government feels it must restrict exports as the fund requests, then let it pay to producers required to sell at the price established by the fund, a compensation payment equal to the difference between t?his price, and the current price ruling in the non-monetary market from which producers are barred by the action of the fund.
The gold mining industry does not ask for any handout; it does not want to be a burden

on the Canadian taxpayer. Take the shackles off, and give it its freedom, and it will take its chances with world conditions.


[Stage Direction]
Motion agreed to, bill read the second time and the house went into committee thereon, Mr. Dion in the chair.
On section 1-Calculation for 1950.
George Prudham: Mr. Chairman, I have an amendment to offer to this clause. It is considered advisable that a new clause 1 be substituted for clause 1 as it now stands. By redrafting the clause a possible ambiguity is removed. The amendment also establishes clearly the method of arriving at the number of ounces to which the $3.50 reduction will apply. Accordingly I will ask my colleague, the Minister of Finance, to move an amendment by which subsection 5 of section 3 as enacted by clause 1 will be deleted and the following substituted therefor:
(5) Notwithstanding anything in this section, the sum that may be paid in respect of gold produced from a mine and sold in the designated year nineteen hundred and fifty, shall be the amount calculated as prescribed in subsection two,'two (a), three or four, as the case may be, less the amount obtained by multiplying three dollars and fifty cents by a fraction of the number of ounces to which the rate of assistance was applied in such calculation the numerator of such fraction being the aggregate of
(a)	gold produced from the mine and sold during the first nine months of that designated year, and
(b)	gold produced from the mine during the first nine months of that designated year and sold after that period of nine months, if in the opinion of the minister the gold could have been sold during those nine months,
and the denominator being the total number of ounces produced from the mine and sold in that designated year, and for the purposes of this subsection the governor in council may make regulations for determining the day on which gold shall be deemed to have been sold.


Douglas Charles Abbott: I so move.


George Prudham: This amendment does not change the intent or application of the act, it merely incorporates in the act what we had intended to do by regulation.


George Alexander Drew: In view of this very simple amendment would the minister explain just what its effect will be.


George Prudham: The administration of the new section 3 (5) will prevent problems arising in the determination of the day on which gold shall be deemed to have been produced and sold during the first nine months of 1950.
There is a period of time in all cases between the date when gold bullion, gold ore or gold concentrate leaves a mine and the date when settlement thereof is completed by the Royal Canadian Mint, a smelter in Canada or a foreign smelter.
Gold Mining
In the case of the majority of the mines which ship gold bullion to the mint the period is very short and it is expected that the date of production and sale will be the day on which the mint issues the cheque in payment for the shipment.
However, in the case of operators who ship gold ore to a Canadian smelter or who ship concentrate to a foreign smelter the lapse of time is as much as three months or more. These cases are the main reasons why regulations are required.


Agar Rodney Adamson: I understand1 the basis of this regulation is that if the gold is sold on a certain day and the exchange rate is such and such on that day, the premium and the assistance will be calculated as of the specific date on which it is sold.


George Prudham: This section relates to the last three months of the year after revaluation.


Agar Rodney Adamson: It only deals with the period after the Canadian dollar was set free.


George Prudham: That is right.


George Alexander Drew: I do not often attempt to introduce a note of levity, but perhaps we should congratulate the draftsman on what I am sure is the longest uninterrupted sentence that has found its way into any statute.


Douglas Charles Abbott: Don't make any bets on that.


Donald Methuen Fleming: I have one question about the date of coming into effect of this amendment. I take it the amendment replaces the provision contained in the bill to be inserted as subsection 5. Is the provision of section 1, subsection 2 of the bill to apply? It provides that this section shall be deemed to have come into force on the 15th day of June, 1948.


George Prudham: Yes, subsection 2 still stands.


John Lambert Gibson: I know that the committee is very anxious to get this bill through tonight, and because of that fact I will make my remarks very brief. However, I should not like to allow the hon. member for Kootenay West to get home entirely free with some of the remarks he made earlier this evening. It was a typical C.C.F. statement of policy. I gathered he was speaking for his party, and it was typical of the usual woolly thinking that comes from them. Like Don Quixote he certainly rode his horse madly in all directions, and he succeeded very well. He was for a subsidy and yet he opposed it in principle. That is a very good way of getting money. You allow somebody else to take the responsibility but you still like to get the money. It almost seemed to me that he was

Gold Mining
making a bid lor what they tell me is quite a substantial Social Credit vote in Kootenay West.
However, one thing that was very plain was that he made it abundantly clear that his policy and mine are diametrically opposed, and that certainly gives me great satisfaction. I am now more convinced than ever that there must be something in the policy that I was intending to suggest that is pretty nearly right. As I said, Mr. Chairman, it is getting late, and I know there is hardly time for one more long speech on goldmining assistance. There is only one thing I should like to say. A number of members have emphasized very much-and I think it is a point well taken-the job we are doing to try to assist the gold mines. I think it is working out to be somewhat of a disservice to them'. I think we are encouraging the gold mines as we do a man swimming out from shore. We are trying to get them farther out and into more trouble. It is like feeding somebody ground glass. We are taking advantage of our gold mines. Necessarily they are having to pick out their high grade ore. What I am afraid of is that the time will come when mines, which under ordinary and normal circumstances would be producing gold mines, will have picked out all their high grade ore, and they will not have an economic operation any more.
It has been suggested that I am not sympathetic to the gold mines. My family has been associated with the gold-mining industry of Canada for the last fifty years, and I certainly appreciate very much the tremendous impetus they give to our country in times of deflation. I thank it is unfortunate that the government is doing things in such a niggardly way. Under the policy that we are following now I think we are doing a disservice to these mines that have to pick out their high grade ores in order to keep in operation. I feel that we cannot afford the manpower, certainly in the base metal mines of Canada. We are very short of miners, and if certain marginal gold mines closed down now it would not be too great a hardship.
With respect to the $10 million that the government intends to use for the production of gold, I suggest that the government might use some of that money to assist mines that are forced to close down to maintain their properties in good condition. I say that because to me it is tragic that we are taking this permanent asset, gold, and selling at below cost of production. The time will come in Canada when we will need that gold badly to bolster our economy. That is only a thought for the government. I am certain that the government is not too proud of their

present policy. I think, Mr. Chairman, you will remember what happened when it was first introduced. It came about through the fact that we lost a by-election in Pontiac at a time when the government did not feel they could afford to lose a by-election, and I think they whisked this policy up out of thin air. It is getting very late, and I see that the Minister of Public Works is very much concerned, so I am going to let him get off the hook.


Agar Rodney Adamson: To reply to what the hon.
member for Comox-Alberni has said, he expressed what a lot of shareholders of the gold mining companies have themselves been saying. I have here the report of McIntyre Porcupine Mines Limited, and as it has been published I do not mind giving these figures. The shareholders were asked three questions. The first one was:
Are you in favour of Canada's gold mines being given free access to the world markets for gold, at home and abroad?
The reply was yes, 1,278; no, 20; and undecided, 12. These are interesting questions. The second question was:
Should we, in order to give support to our employees and the mining communities in general, continue to struggle against almost impossible odds until our resources are exhausted?
The reply was yes, 130; no, 1,042; and undecided, 138. The third question was:
Should we, in order to conserve our valuable ore assets, give consideration to suspension of operations until we can reopen the gold mines under more favourable conditions?
The answer was yes, 988; no, 176; and undecided, 146. I want to put that on the record because there is a tremendous body of information among shareholders that this unequal struggle against an impossible formula should be ended. I do so as a warning to the government. It is only because this company, like many others, realize that they have a responsibility to the Dominion of Canada, to the community in which the mine is situated and to their employees that the decision to continue operations is made. I know personally a great many gold mines which would be much better off if they were closed down, and it is only because of their feeling of national duty that they continue to operate.


[Stage Direction]
Amendment agreed to.
Section as amended agreed to.
On section 2

Application of act to 1951.
George Prudham: I have an important amendment to propose to section 2. Since the introduction of the bill we have made a further and careful study of the needs of the

industry at this time, and we are now prepared to make a further extension of the cost-aid by giving the mines the option of 1948, 1949, or 1950 as the base year. This will make the cost-aid more flexible in its application to the varied conditions which exist in the different mines. Those mines whose production has been falling would undoubtedly choose the 1950 base year. Those whose production has been increasing will have the option of choosing 1948 as a base year. It is estimated that this extension of the cost-aid will increase the expenditure by about $700,000. I move that clause 2 of the bill be amended by substituting for paragraph (b) of the proposed new section 3A the following:
(b) the expression "base year"
(i)	in the case of a mine in which the first year of production commenced on or before the first day of January, nineteen hundred and fifty, means the calendar year nineteen hundred and forty-eight, nineteen hundred and forty-nine or nineteen hundred and fifty, as the operator of the mine may elect, if in the year elected the mine was in production for at least six months, and where the mine was in production for less than six months in each of the said years, means the first period of twelve months following the first day of July, nineteen hundred and fifty, in which the mine was in production for more than six months, and
(ii)	in the case of a mine in which the first year of production commenced after the first day of January, ninteen hundred and fifty, means the first year of production.


Douglas Charles Abbott: I move accordingly.


[Stage Direction]
Amendment agreed to.
Title agreed to.
Bill reported.

Alphonse Fournier: Tomorrow we will give third reading to Bill No. 296, to amend the Income Tax Act, and to Bill No. 194, to amend
Business of the House the Emergency Gold Mining Assistance Act. Then we have some small bills: No. 385, to vary the Manitoba natural resources agreement; No. 386, to vary the Alberta natural resources agreement; No. 387, to vary the Saskatchewan natural resources agreement. Then Bill No. 380, to amend the Central Mortgage and Housing Corporation Act; Bill No. 381, to amend the National Housing Act. We spent some time on housing last week, when the estimates of that department were passed. Then we have two resolutions in the name of the Minister of Finance concerning the financing of the Canadian National Railways. They are formalities, I am told. When we have completed these non-contentious matters we will move to go into supply and call two departments, and consider the estimates of mines and technical surveys and public works.


George Alexander Drew: Would the minister indicate what is planned for Wednesday?


Alphonse Fournier: I have not really looked over the order paper but I would try to move up some resolutions, though not those having to do with old age assistance or assistance to the blind. We will move to go into supply also on Wednesday.


George Alexander Drew: I was wondering whether either external affairs or national defence might be called on Wednesday. I think perhaps we might have some indication as to when we will again deal with external affairs.


Alphonse Fournier: Probably after meeting the cabinet tomorrow I will be in a better position to say when we will take up external affairs, and I will let my hon. friend know.
It being five minutes after eleven o'clock, the house adjourned, without question put, pursuant to standing order.
427?

Tuesday, June 19, 1951